The Federal Court has imposed record fines on Otton and his company for misleading his students and the public – but what harm was caused?
Some of Otton’s students lost money, or were prosecuted by regulators, for using his strategies, but even that wasn’t the main problem – it was the harm done to low-income and disadvantaged potential home buyers and sellers.
About 17 years ago, a free legal service I ran, was seeing clients who were in trouble with various vendor finance, or ‘rent-to-buy’house contracts. Other services that provided housing support to disadvantaged people reported that their clients were struggling to make the payments on these deals, and would never be able to pay out (and therefore own) the property (which was often in a dilapidated state). In reality, these “purchasers” were really tenants who were paying double rent, as well as the rates and maintenance. In many cases the “purchasers” used a once-off government grant for a deposit, which was retained by the seller when the deal fell over. Some services reported the same house in their area being sold 2 or 3 times as each ‘buyer’ couldn’t afford the payments or couldn’t get a loan at the end of the term.
Many years later, working in a similar service, we saw clients with similar problems, paying cash up-front, and high monthly payments for a property they would never be able to buy. However, we also became aware of some home owners who had been convinced to allow an intermediary to arrange to sell their home on terms. The deals were often unfair to owners who were desperate to sell. With the deposit and a high proportion of payments going to the intermediary, there was little – or no -financial benefit. Owners could be locked into long-term contract, often exacerbating their financial problems. When things went bad (for example when one “purchaser”set up a drug-lab and destroyed the home) the intermediary was not named on any contract and could not be found.
Otton was not involved in these deals personally – but he taught the strategies. We became familiar with the names of some of Otton’s students, and clients would report doing the deal with one of those people – often those students Otton lauded as “successful”.
See Rent to Buy Houses – What Can Go Wrong? and report by Consumer Action Law Centre, Fringe Dwellings, the Vendor Finance and Rent-to-Buy Housing Black Market.