Dominique Grubisa and DG Institute – Part 2

Read an overview of my concerns about Grubisa’s Real Estate Rescue technique here.

This post considers some issues in more detail.

DG Banks Dont Give Change

These are my views on some content of Grubisa’s seminars and videos.

Grubisa is a lawyer – I’m not – but these issues may raise questions that you want to check with Grubisa – or get your own legal advice about.

Grubisa promotes the fact that some of her strategies are new, for example she says about her Real Estate Rescue program “The process has never been taught or practised before in Australia”.   When there is an unusual application of any law, it can mean that it has not been thoroughly tested in a court, and therefore the legal situation may be unclear.

Some strategies are presented in a way that links them to recent legislative reforms.

National Consumer Credit Code (NCCC) Regulations (2009)

Grubisa mentions the NCCC in relation to her “takeover” strategy – which involves students locating “motivated” vendors, controlling the property by way of an irrevocable power of attorney, a signed blank land transfer and other documents;  and taking over mortgage payments until the house is sold for a price determined by the student.

Grubisa suggests that the NCCC supports this strategy.  She says:

“The NCCC is the law they brought here in post 2009 the GFC and what it says it’s such an act of Parliament it applies across the whole of Australia and under the Act there’s Regulations that are also an Act of Parliament and what it says there retrospectively for the first time ever it says if a homeowner can’t pay their home loan in Australia now someone else can legally pay it for them.  The bank doesn’t have to assess that person, they don’t have to qualify for credit –  the bank can accept repayment from anyone and the loan can stay on the title and you just piggyback off the loan that is there. That is my take over deed.”

Grubisa quotes the NCCC Regulations as follows: “If you cannot pay your loan, you can have someone else pay it for you”.

It is possible that the words she quotes are in the NCCC Regulations, but I can’t find them – so I’d encourage you to have a look yourself

What I can find in the Regulations is a notice (Form 5) which a lender must give to a borrower in default. The notice must include a range of possible actions the borrower can take if they can’t pay.  These actions include:

  • if the mortgaged property is goods — give the property back to your credit provider, together with a letter saying you want the credit provider to sell the property for you;
  • sell the property, but only if your credit provider gives permission first;or
  • give the property to someone who may then take over the repayments, but only if your credit provider gives permission first.

Now, I don’t believe that this 2009 law gives borrowers any more rights than they already had.  Nothing has ever stopped you from making payments on someone else’s debt – and a borrower has always been able to ask the lender for permission to give the property to someone who will take over the payments. The NCCC Regulations just require that this option be included in the notice.

I suspect such a request to a lender may be more likely to be accepted if the property is a car, or similar.  I’m not aware of a bank, or other lender, agreeing to this in relation to a house, and I doubt that a bank would do this without assessing the new person and rewriting the mortgage.

However, the Real Estate Rescue manual says:

“It’s good for you as an investor that it’s written in the legislation that you can take over the person’s payments.  You have the choice of telling the lender what is going on or not telling them”.

Perhaps I’ve missed something – and even if Grubisa is mistaken about the Regulations, it doesn’t mean students are breaking any law by using the strategy (although I do believe there are a range of ethical problems with it), but I can’t find anything in the NCCC Regulations that say what she says – please let me know if you can find it.

Do banks keep more than they’re owed after a ‘foreclosure’ sale?

Two examples in Grubisa’s Real Estate Rescue manual involve an ‘investor’ telling a motivated vendor that “banks do not give change” if the bank sells the property.  In one example the owners have $220K equity in a home worth $420K.  The ‘investor’ convinces the owners to sell their equity to him for $50K, on the basis that this is “more than what they’ll get if the bank sells the house”.

In a video Grubisa says:

“…the moral problem I have with all this is that when a bank repossesses a property, the way our system works,  the legal system is that the court makes an order and the bank just takes over-  it’s as if they own the house.  Then they keep out the homeowner, they change the locks, they market, they sell it – and when they sell it they keep everything because they don’t give change and this is because of a little known clause in every mortgage contract that says ‘you indemnify us in the event of a default’. What it means is if the house sells for half a million and the mortgage is only 300 thousand you’d think there’d be two hundred thousand left over – change – equity in the property for the homeowner- the bank keep it all…”

Of course, anyone in mortgage arrears is likely to be better off arranging to sell their house before the bank steps in to sell.  If the bank sells, you lose some control over the price and selling costs; and the bank’s legal costs will be deducted from any equity in the property.  However, banks don’t have a right to retain more than the mortgage balance and their reasonable costs.

This is supported by legislation (for example the Transfer of Land Act (Vic) (1958) s.77) and by various court decisions[1].

If the bank retains more than the borrower thinks is reasonable, the borrower can take the matter to the Australian Financial Complaints Service (AFCA)  for resolution.   AFCA’s approach to these disputes can be found here.

I have to assume that Grubisa probably explains the legal position at her seminars, and explains that these statements and case examples are simply a term of speech to emphasise that allowing the bank to sell is not the best option.  However, anyone implementing the takeover strategy might need to be extremely careful that they don’t mislead a homeowner about the consequences of a mortgagee sale.

Are you misleading consumers?

Grubisa may warn about this in her seminars, but if you just copy some of the wording in examples in the manual and webcasts, you could be misleading people and be in breach of the Australian Consumer Law.   If you say, “I’m looking to buy a house in your area” and you don’t intend to buy but intend to use a power of attorney, you could be misleading consumers.  If you say “we can make an immediate offer to buy your house for cash” you may be misleading people if you do not intend to buy the property.  If you say “we can buy immediately and can offer a short settlement period – literally 24 hours”,  you may be misleading people unless you are able to pay in full to purchase within 24 hours.  If you say “we have been able to gain an extension on our pre-approved finance for this next purchase until [date]” then you may be making a misleading statement if this is not true.

So, is this just petty?  Sounds ‘over the top’?   Regulators are unlikely to pursue you (although individuals could argue these points in a court or tribunal).  However, the Western Australian case of Commissioner for Consumer Protection  v Susilo shows that regulators can, and do, take action against individuals for statements similar to these – particularly if they have concerns about the techniques overall.

The Susilos carried on a business of promoting vendor terms and lease options, acting as an intermediary, or in some cases in a joint venture with the owner.  In 2014, the Susilos were prosecuted by the regulator for misleading conduct.

Representations including “we can buy your house fast” were found to be misleading because “the business did not buy houses but instead used Option, Rent to Buy Arrangements or Joint Venture ‘Rent to Buy’ Arrangements”.

Representations including “’We’re part of a group of real estate investors who buy houses and units directly from you in any area, any price, and any condition throughout Australia” were found to be misleading because the defendant wasn’t part of a group of real estate investors.

Representations including “buy my home, no bank needed” were found to be misleading because the defendant didn’t own the home, and a bank loan would be required (eventually) to finalise the purchase.

The two defendants were fined about $30,000.

 As Victorian solicitor Lewis O’Brien told members of the Vendor Finance Association following this case:

“Careful attention needs to be paid to marketing claims so as not to infringe the Australian Consumer Law. It is clear that the latitude for advertising ‘puffery’ (or exaggeration) has been significantly reduced by the Australian Consumer Law and marketing statements must be factually based.  Attention to detail is paramount.

 Read what I wrote about the Susilos’ case.

Read the court decision.

Do you need a real estate agents licence?

The Susilos were also prosecuted for signing up a lease option with an owner and advertising for buyers to take on the lease option without holding a real estate licence.  Of course, their techniques were different from the Takeover strategy, and the courts may consider using a power of attorney removes any requirement to be licensed – but who knows?  I suspect this has never been tested in court.

As solicitor Lewis O’Brien told the Vendor Finance Association:

 “Members also need to be aware of the tightening requirements in relation to estate agent licencing. Those who make business in real estate need to consider obtaining an estate agent’s licence.”

Irrevocable Power of Attorney

“They’re like unicorns. There’s a lot of talk about the takeover strategy but you rarely hear about people doing it”.

That’s a comment from one past student about Grubisa’s Takeover strategy.

I have wondered whether the ‘takeover strategy’ is used all that much.  Convincing a homeowner – even a desperate one – to give a power of attorney and a signed blank land transfer to a person they don’t know could be tough.

I’m aware there has been a lot of debate about the legal enforceability, or otherwise, of the power of attorney documents provided by Grubisa.  I can’t comment either way about that.

However, there are two factors to consider.

Firstly, how a legal document is used is just as important as what it contains, and I’ve seen successful legal challenges on behalf of consumers where, on the face of it, the documentation is technically correct.  Secondly, a key question is “how easy is it for someone to challenge the validity of an arrangement even if the documents are legal?”.

If someone can walk into the titles office and allege unfair conduct to revoke the POA (whether or not they have any evidence of unfair conduct), it may not matter much what lawyers say about the documentation – unless you’re interested in running a case in court.

This is probably an example of the risk I mentioned above, when you are using a recently developed technique that uses legal principles in a new way.

[1]This article refers to a number of relevant Australian court decisions. http://www5.austlii.edu.au/au/journals/LegIssBus/2009/6.pdf

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