Today’s newsletter to the finance industry ‘The Sheet’ outlines a series of unfortunate events by which a consumer was lent money that he could not repay. Again and again. Fortunately the nasty lenders lost their money and the poor consumer didn’t have to pay – anything.
Kremnizer antics proves costly for lender
The activities of the related Sydney-based law firm RL Kremnizer & Co and mortgage broker Bleier Mortgage Corp are under the spotlight in the wake of a decision yesterday by the Supreme Court of New South Wales to apply the consumer credit code to a loan that Kremnizer and Bleier, their funders, and their borrowers had all entered into on the basis that the loan was a business loan.
The decision of the court is also remarkable since the borrowers, Michael Cook and Karen Cook, made no payments at any stage under the contested loan.
That fact alone highlights one of the claims of the Cooks, and their lawyers from NSW Legal Aid, in defending the action by Kremnizer for enforcement of the mortgage namely the inability of the couple to ever repay the loans.
The contested loan was the fifth refinancing of an original Commonwealth Bank loan for $110,000 taken out by the Cooks; a truck driver and his spouse, back in 1998 and secured by a mortgage over their home in western Sydney.
The Cooks defaulted on this loan in late 2000, and refinanced the loan for $120,000.
In April 2001, the Cooks defaulted on this loan, and refinanced the loan for $138,000.
In May 2002 (and one month after an early release of superannuation on hardship grounds) the Cooks defaulted on this loan, and in August 2002 refinanced the loan for $174,000 through Liberty Financial.
In October 2002, the Cooks obtained a second mortgage for $22,000 in order to make repayments under the Liberty loan.
By February 2003 the Cooks were in default on the Liberty loan, and in May 2003 obtained two further loans worth an aggregate $245,000, with a punitive interest rate (reducible for timely payments) of 13.8 per cent on the bulk of the loan, and 19.5 per cent on the balance.
According to NSW Legal Aid, the Supreme Court ruled in favour of the Cooks in one action by the lender seeking possession of their home on the basis that the lender had failed to serve the required notice under the Consumer Credit Code. In other words, the court ruled that the Code applied to the loan irrespective of its stated purpose as a business loan.
NSW Legal Aid said the court also reopened the contract and reduced the amount the Cooks had to repay on the basis that the lender failed to have sufficient regard to their capacity to repay the loan.
Latrobe Financial provided funds for the final loans. The Cooks signed declarations that the loans were for business purposes.
Further investigation by your intrepid reporter reveals that he threw the switch a tad too far in the tabloid direction in the above quote. Further research reveals . . . from this site that:
[T]he lender was entitled to judgement in possession. The fees paid by the Cooks were reduced (the total reduced was $13,627.50) and the Cooks were not to be charged an interest rate higher than the ordinary rate. The Cooks were also relieved of any obligation to pay the lender’s default costs. While the credit contract was found to be unjust, the court did not set aside the mortgage.
Even so, in my humble opinion the whole thing is ridiculous. The Cooks were given several ‘last chances’ and preventing lenders from charging interest that reflects their risk (considerable in this case) will simply prevent people being given such chances. It is remarkable how much ‘social regulation’ is directed towards things that we want to avert our gaze from – and so we outlaw them. How ugly that someone should have their house repossessed. So we prevent people from being able to mortgage their house if there’s a risk it might happen. I recall several years when I was unable to refinance my own house because (though I’d not defaulted on a loan in twenty years) no-one could lend to me because I didn’t have the income to “service” the loan (I just had the capital to do it for several years and some plans to build an income earning business in the meantime.