Federal Court judgment against property spruiker shows ‘rent-to-buy’ is a sham

Consumer Action Law Centre says today’s Federal Court ruling that property spruiker Rick Otton misled and deceived hopeful property entrepreneurs shows that so-called ‘rent-to-buy’ schemes are a complete sham.

Rick Otton and his company We Buy Houses promoted property investment strategies including vendor finance and ‘rent-to-buy’ deals through seminars, courses, boot camps, mentoring programs and training materials. The Court found no evidence of successful ‘rent-to-buy’ deals done by Otton.

‘”Rent-to-buy” and vendor finance are really black market schemes which promise the dream of home ownership but don’t deliver,’ said Gerard Brody, CEO of Consumer Action Law Centre.

‘The self-styled guru of these schemes couldn’t point to a single successful rent-to-buy deal he has done. None of his ex-students or ‘big kahunas’ gave any evidence of their success or otherwise. Unfortunately we know of many ‘rent-to-buy’ and other deals that have fallen over and taken a huge financial and personal toll on the people involved.’

The Court found that applying Otton’s techniques ‘may give rise to a plethora of substantial financial risks’.

‘The truth is, rent-to-buy and vendor finance schemes target people who are about to lose their homes, or who are desperate to own their own homes. It’s a cruel and unusual way to make money from the misfortune of others.’

‘We have been calling on governments to ban ‘rent-to-buy’ and vendor finance schemes for many years. The ACCC should be congratulated for taking on this case. The court decision is a significant red flag about the legitimacy of these schemes, and we hope it prompts fast and effective action.’

Media Contact: Jonathan Brown, 0413 299 567, media@consumeraction.org.au

ACCC Media Release

Judgment: https://www.comcourts.gov.au/file/Federal/P/NSD170/2015/3718500/event/29035624/document/1014200

Excerpts from the ruling:

The Federal Court found ‘there was almost no evidence that [Otton] had used the strategies, let alone used them to make money.’ There was no evidence that Otton had bought a property since late 2006.[paragraphs 181-2] Otton told his students about deals that he said he had done, or that they could do. The judge found one example was ‘fictitious and that Mr Otton was lying’ when he claimed he remembered the buyers.[164]

One model transaction he admitted did not work [131], another court found was false [143], another was not an actual example of the strategy he was promoting [151], another there was no evidence of [162], and yet another was an ‘over-simplification’.[168]

The Court said ‘the evidence plainly demonstrated the falsity of the statement [in the book] that ‘Rick buys, sells and trades property, using little or none of his own money, and structures transactions to create positive cashflow’.[221]

The Court also found that when Otton published his book on ‘How to Buy a House for $1’ in 2011, he had not been in the business of buying residential investment properties for at least four years.[216]

Background to vendor finance and ‘rent-to-buy’

  • Vendor finance and ‘rent-to-buy’ deals are pitched by property spruikers to people who can’t get a mortgage, often because of their income, savings or credit history.
  • Buyers take a big gamble on vendor finance and rent-to-buy—they don’t legally own the property and typically pay much more than under a regular mortgage.
  • When things go wrong, buyers have no guaranteed way to get their money back.
  • The legal framework is complex and inadequate—legal protections for buyers vary depending on which state a buyer is in, the type of documents they signed and whether or not the person they did a deal with falls under consumer credit laws.

Consumer Action released a report in October 2016 outlining the substantial risks associated with these transactions, Fringe Dwellings: The vendor finance and rent-to-buy housing black market, available here: http://consumeraction.org.au/australian-dream-devastated-housing-black-market-report/

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