Has the Government put Rick Otton’s book in all the libraries?

Rick Otton and his students go to great lengths to show how “rent to buy” strategies are accepted – even supported – by Government, the Courts and the banks.

Most of these claims are probably inconsequential in their own right, but it appears that they aim to build up a picture of strategies that are ‘mainstream’ and safe.  The risk is that some people confidently put these strategies into action, and find out too late that some aspects of the practices have not been fully tested in the Courts and are open to challenge.

book in libraries

Here is just another example where Otton claims in 2013 that the Government put his book “How to Buy a House for $1″  in all libraries, and says “they appreciate progress”.   Replies to his post on Facebook include “Awesome”, “fantastic Rick, great success”, and “outstanding”.

Admittedly, the Trove service is created and maintained by the National Library (an Australian Government institution), but that is where Government involvement ends.

According to the Trove website it “provides access to more than 380 million resources” with a link to Australia including books, newspapers, journals and websites.

I probably don’t need to go any further to suggest that it would be physically impossible for Government to make a value judgement on each of the 380 million resources on Trove, which as well as Otton’s book include books supporting Scientology, Creationism, and 9/11 conspiracy theories!

Otton is correct however, in noting that his book is available to borrow from some public libraries.

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Publicity Monster finally pays up

See previous post for background.

In June 2014, the Victorian Tribunal (VCAT) waived any obligation for my friend L’s business to pay $3,030 to Publicity Monster (PMAU) and ordered PMAU to refund to L the $1,317.80 he had paid them.  Publicity Monster is part of the Search Results Group and a business name of PMAU Pty Ltd. Continue reading

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When the going gets tough, the tough get …evasive?

How have prominent rent-to-buy figures responded to challenges?

facebook comment re we buy houses   The rent-to-buy industry has faced some challenges over the past few years, including negative media coverage, attention from regulators and a series of prosecutions. Continue reading

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Publicity Monster customers get more than they bargain for

For a change, this post isn’t about rent-to-buy property.

New: If you would like some legal information about running a similar case, send me an email (see the “about” page for my email address) or leave a comment (I won’t publish your comment) and I will send you a document by email.

This is about one person’s dispute with online marketing/SEO business  Publicity Monster (PMAU), in the hope that it might help others in a similar situation. For more about complaints regarding PMAU see hundreds of comments on the Whirlpool Forum here. Continue reading

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Rent-to-buy selling techniques

This post is about selling techniques taught by Rick Otton.  While not all rent-to-buy operators would use these techniques, it is likely that they are used widely in the industry. Many – perhaps most – of the people in this industry have done Otton’s training at some stage. Even those who haven’t are often taught or mentored by Otton students.

There is little doubt that Otton is a great salesman. He worked in the early days with body language expert and author, Allan Pease. He has written books such as ‘How to Handle Objections’, and ‘Killer Seller Responses when Negotiating a House for £1.’ and contributes to the workshop and home study course ‘The Habits of Master Persuaders’.

Otton builds rapport with his students – who pay thousands of dollars to attend his seminars, and some continue to pay many thousands more for his mentoring years later.

In one of his videos, a number of past students are very emotional about the difference that Otton’s training has made to their lives. However, I can’t help wondering whether the transformation is one where some students who have been doing it tough – under financial pressure themselves – feel they have now gained some control because they are now able to persuade others who are in a desperate financial situation and make money out of others in hardship.

Hearing Otton talk about channeling people into the direction that you want and controlling people’s responses, makes me wonder whether any of the hundred or so seminar attendees question why this is necessary if the strategies are, as he claims, “win-win”. Do the students ever question the morality of what he teaches? Given the feeling in the room, and what appears to be idolisation of Otton, I suspect not – at least not at his seminars. Continue reading

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Rent-to-buy houses – is it legal?

Update:  Most rent-to-buy property agreements are prohibited by law in South Australia and Victoria.  Check state legislation.

While a number of rent-to-buy websites respond “yes”, this question could refer to any one of many different transactions. The term “rent to buy” is used for various combinations and structures of contracts including options to purchase, tenancy agreements, terms sales and joint venture agreements. The transactions can involve intermediaries playing various roles, and use “innovative” marketing and persuasive selling techniques.

A number of legal cases show that when rent-to-buy matters come before courts or tribunals, decisions may be made about whether parties have appropriate credit and estate agent licences,  whether advertising and representations breach the Australian Consumer law, whether an individual contract is unjust as a result of the facts surrounding the agreement, about the validity of the written contract and whether a owner must pay interest on option payments made by the ‘buyer’.  (See links page for some more cases)
Continue reading

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Big comeuppance for ‘Big Kahunas’

The problem with ‘creative’ or ‘innovative’ strategies is that that the application of the law to the transactions may not have been tested in the courts.  I’ve written previously about what can go wrong for buyers and unsuspecting sellers, and legal rights they might have.  This post focuses on some risks for rent-to-buy operators which have been highlighted by the courts.Susilos

Last week, the Western Australian (WA) Supreme Court foundthat two rent-to-buy operators (brother and sister) made misleading and deceptive statements and that one carried on business as an estate agent without a licence. [Commissioner for Consumer Protection -v- Susilo [2014] WASC 50 (27 February 2014) ]  The couple, touted at one time by Rick Otton as “Big Kahunas” were fined almost $30,000.

The New South Wales (NSW) Supreme Court was busy on the same day, ordering that the house price in a vendor finance contract be reduced by 30 percent because contract was unjust.  [Gray v Latter [2014] NSWSC 122 (27 February 2014) ]

Misleading statements
Real Estate Agents’ licence
Rick Otton comments
Gray v Latter
Implications of these cases

Misleading statements
Whether a statement is misleading will depend on the circumstances, so I have summarised some of the statements found to be misleading in the Susilo case and the Court’s reasons.

  • ‘A place for you to come in and trade your unwanted property for cash. So remember we buy houses Australia wide in any area, condition or price’.
  • ‘We typically buy 3-4 bedroom houses and units Australia wide…..’
  • ‘We buy: Expired Listings, Vacant Houses, …… Any Price, Any Condition! If you don’t want it, we do!’

Contrary to these claims, they “did not buy houses” and used option to buy or joint venture arrangements and would not exercise that option unless a purchaser was found who would enter into and exercise the option.

  • ‘We can buy your house fast’.

Any sale of a property as part of a Rent to Buy Arrangement would not be completed immediately or within a short period of time.

  • ‘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.’

They weren’t part of a group of real estate investors.

  • ‘We do not charge any commissions or fees to buy your house’.

But they would “derive fees in the form of the difference between the amounts paid to the First Defendant by a potential purchaser and the amounts paid by the First Defendant to a potential vendor”

  • ‘Own my home’ ‘Buy my home’

“The operators were not the owners of the freehold interest, whether solely or jointly, …. and were not offering the freehold interest for immediate sale.”

  • ‘Stuff the Banks’
  • ‘No banks home’
  • ‘Get in straight away! No Bank Qualifying!’

The “purchasers” would not be able to own the properties without obtaining bank finance at some stage.

Advertising the houses for purchase at a weekly amount was also found to be misleading, because the house could not be purchased simply with the weekly payment, but required the payment of an upfront fee, and payment of the full purchase price therefore probably requiring bank finance at some stage.

Real Estate Agents’ licence
The Court found that the Ms Susilo was acting as a real estate agent “in that she was engaged by, or was acting on behalf of, the owners of the properties the subject of the transaction to locate a prospective lessor or purchaser of the property and she received monetary reward for locating a purchaser, and that “Ms Susilo performed the usual functions of a real estate agent in marketing the sale of properties, dealing with enquiries regarding the purchase of the properties, showing properties to prospective purchasers and receiving deposits for the purchase of properties”

Two points that may be of interest to rent-to-buy businesses (but I would, of course,  encourage them to check my interpretation by reading the decision) were:

The WA real estate legislation specifically states that someone must hold a licence if they act as an agent in relation to “an option to enter into a real estate transaction”, however, the Court did not specifically rely on that clause, but considered the activities engaged in more broadly (as outlined above).

The Susilos entered into a joint-venture with the seller in one of the matters before the Court, and the Court included facilitating “a joint venture rent to buy arrangement” as one of the “Rent to Buy Arrangement[s]” it considered to be the “business of a real estate agent”.

Rick Otton comments
The Susilos appeared alongside “successful” past students (referred to by Otton as ‘Big Kahunas’) at one or more Otton seminars.  It appears that Rick Otton was referring to this case, as well as his own “banning” in WA, when he made this post in November 2013 (prior to the final outcome in Susilos’ case).  Otton expressed concerns that in WA “people need a real estate license in order buy, sell or trade a property option”.   Otton bemoaned the fact that this “change” in the WA laws, “was never debated or challenged”.  While Otton may have been referring to some other change that I’m unaware of, it appears that  the requirement to be licensed in WA to arrange property options has been in place for at least 35 years.

While the court didn’t specifically discuss the reference to options in the legislation, I suspect that as far as “creative” property strategies, the question of whether an estate agent’s licence is required in WA (and possibly the rest of the country) may have been settled. top

Gray v Latter
This was a somewhat different case in NSW but it also has some bearing on rent-to-buy deals.  In this case there was no intermediary, it was a one-off sale and the sellers were not in the business of doing property transactions.  However, the Supreme Court found that the sale on vendors terms was unjust on the basis that the price of the property was “exorbitant”, default was inevitable at the end of the contract period, that terms of the vendor finance concealed the improvidence of the transaction, and that there was exploitation by the sellers of “trust and friendship”.  The sale price was $240,000 compared to evidence presented to the Court of estimated value at the time of sale of $167,500.

The Court found that the national credit legislation (NCCP) didn’t apply because the sellers weren’t providing credit in the course of a business.  However, the NSW Contracts Review Act did apply and the Court made orders to re-write the terms, including a reduction in the contract price by $72,500. top

Implications of these cases
The following is my personal opinion – I am not a lawyer.  

Hold a real estate agents licence, if you are doing rent-to-buy or be very confident of any legal advice that indicates you don’t need one.  While the licence decision was based on WA legislation, the wording of the decision suggests that the definition of ‘real estate transaction’ in other states’ legislation would be adequate to require that rent-to-buy operators hold a real estate agent’s licence.

Fix up your website, ads and signs The Court relied on the Australian Consumer Law (Commonwealth) in finding the various statements to be misleading, so it is likely that similar statements would be found to be misleading in all other states.  While there could be prosecutions in other states for conduct over prior years, it’s better to comply late than never.

While there is an extensive list available from this case, the general approach should also be used as a guide to other statements that might be found to be misleading.

There are many rent-to-buy operators making similar claims to those made by the Susilos.

“No bank”, “buy my house” “we buy houses” “we buy houses fast” and “own this home, no bank, $600pw” are found in photos of Rick Otton seminars and in his book “How to Buy a House for $1”.  All these statements could be true of course, depending on the circumstances.  However, if you don’t own the house, aren’t offering to buy a house outright, or aren’t genuinely offering finance where no mainstream loan will ever be required, the Court says they are misleading.

If regulators were at a loose end, they could fill their days following up
Google results for these statements.  Of course they don’t have time to issue proceedings against everyone, but businesses, and seminar presenters, are on notice.

You can’t use the excuse “someone taught me”  The problem for any seminar students is that it is not a defence to prosecution to say that someone suggested, or taught them to make particular representations.  As Rick Otton student Rowan Lines complained, when she also ran into trouble with Department of Commerce WA,  “Why is it, that out of 10,000 Rick Otton students, I have been singled out and have a case to answer in Supreme Court?….I did not invent this. I learned it.”

The Supreme Court accepted the Susilos’ evidence that they followed what they were taught at courses, including the advertising, and that the Susilos had paid the presenter $1,000 per month for ongoing mentoring and support.  The Court accepted that the Susilos didn’t believe their statements were misleading, but whether or not a person intended to act illegally has little bearing in these cases.

Unjust contracts: The decision relating to the exorbitant house price was based on the NSW Contracts Review Act.  However, this legislation contains similar provisions to the unjust provisions in the NCCP.  While purchasers in the same position in another state may not obtain a similar outcome from a deal which is not in the course of business, similar provisions of the NCCP may apply if a party is in the business of providing credit, or holds a credit licence.

A finding that a contract is unjust under the Contracts Review Act, or the NCCP, is usually based on a combination of a number of factors, rather than just one.   It is therefore difficult to directly apply a decision to another case.  However, rent-to-buy agreements where it is unlikely that the purchaser will be able to refinance and eventually own the property, are clearly open to challenge, and in such a case sellers and operators may find other aspects of the deal being examined in detail, which could include the price, representations made, advertising and the selling strategies used to sign up the buyer. top

Reference to other court and tribunal cases involving rent-to-buy can be found here.

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Do banks suggest rent-to-buy?

I have written previously about a claim about a Census question supports the legitimacy of rent-to-buy transactions. In this post I’m considering the claim that “even the banks are suggesting rent-to-buy”.

I don’t claim that ‘rent-to-buy’ transactions aren’t legal. Most of these transactions are probably within the law – although the legal status of a variety of “creative strategies” may not be settled until determined by the courts – some day. I suspect, for example, that discussion amongst operators about different types of “joint ventures”, and when a joint-venturer might require an estate agents’ licence might just be one example where the law hasn’t been fully tested. The fact that a NSW tribunal ordered that the majority of an amount paid as an option payment was rent, and was to be credited to the tenant when the agreement was terminated, also suggests that the application of our current state and federal laws to these deals is far from settled.
However, the claim I am considering here isn’t one used to support the legality of rent-to-buy, but used to indicate broader mainstream acceptance and support of rent-to-buy.

“Even the banks are suggesting rent-to-buy”

In 2012, a post appeared on the Commonwealth Bank blog about the benefits of home buyers entering into rent-to-buy agreements, as a way to “get on the property ladder”.
Continue reading

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Acceptance of rent-to-buy – the Census question

“This proves rent-to-buy is accepted!”

(Update August 2016 – In 2016 the words in the Census question were changed from “rent/buy scheme” to “shared-equity scheme” suggesting that my conclusion in this post – that the question never referred to vendor finance or lease options –  was correct).

I don’t claim that rent-to-buy is a scam, or that the models used in rent-to-buy or vendor terms are illegal – but that a lack of appropriate regulation puts buyers and, what industry calls, “motivated sellers”, at risk. You would hope that people would stop and question these unusual transactions – but understandably some in the ‘creative real estate’ industry seem to go to a lot of trouble to demonstrate how these transactions are legitimate, and widely accepted by government and the community. On their own, the claims made may seem trivial – but in combination they can give an overall impression that these deals are more prevalent and accepted than they are.  Here I start to put some of those claims to the test.

Claims used to demonstrate the legitimacy of rent-to-buy transactions include:
• A question in the census “proves rent-to-own is an accepted way of buying a home”
• “Even the banks are suggesting rent-to-buy”
• But “leading government officials regularly seek [Rick Otton’s] advice on solving the housing affordability crisis.”
• In 1927 the “legality of both forms of vendor finance was accepted by the High Court of Australia.” Continue reading

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Limitations of pre-contractual advice

See 15/3/14 addition to this post

This post focuses primarily on rent-to-buy house deals, but it also applies to some other complex or high-risk consumer contracts.

I’ve explained how some rent-to-buy deals work, and what the risks are for buyers and some sellers.  So, aren’t these problems with rent-to-buy houses the buyer’s fault if they don’t get legal advice?  ( I use the terms “buyer” and “seller” to also refer to parties in an ‘option to purchase’ contract).

Obtaining advice may be discouraged

I’m not aware of any buyers being prevented from obtaining legal advice, but selling techniques which employ trust and reciprocity and suggest scarcity and urgency may reduce the likelihood that the buyer will seek independent legal advice.   I hope to write more about these selling techniques in a later post.

Buyers may not be able to afford legal advice.

Sellers or intermediaries are aware of the buyer’s financial circumstances, and will know whether the buyer can afford to obtain legal advice once any deposit or option fee is paid.  In fact the seller or intermediary may base the fee on the total funds the buyer can obtain.

For example, on page 131 of “How to Buy a House for $1”, Rick Otton gives an example of a hypothetical conversation with a buyer, which includes this:

You:       “How much up-front money would you have to get started?”

Them:   “Around $5,000” (Click)

You:       “Up to…?” (Pause)

Them:   “$8,000” (Click)

You:       “But no more thaaaaan…?”

Them:   “Actually, we’ve got $8,200”. (Click)

Assuming the buyer must then find money for moving and other costs, it’s difficult to see how this buyer could afford to pay for independent legal advice. Continue reading

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