Newsletter - Summer 2009
In this issue:
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Contributory Mortages
What is a Contributory Mortgage?
A contributory mortgage is where two or more contributors pool financial resources for the purpose
of advancing a loan to a borrower which is secured by a registered mortgage over land together with
supporting guarantees and such other collateral securities and charges as may be appropriate. These
advances are managed by a company on behalf of the contributors. The management company operates
a trust account on behalf of the contributors to which their funds are deposited upon receipt for
investment, and on repayment pending either being re-advanced to a new borrower or repaid to the
contributor.
What are the advantages of a Contributory Mortgage?
There are a number of reasons why a contributory mortgage offers contributors a secure investment
which still generates a very fair return for the contributor in today's economic climate.
One of the fundamentals of investment is the spreading of risk. If investing in the share market, it is
considered appropriate and prudent to spread investments over a number of companies rather than
one or two. Similarly, managed funds will normally manage this risk by investing in shares, bonds and
fixed interest securities. A prudent investor may further spread their investment in a number of funds
themselves.
The same philosophy lies behind a contributory mortgage in that:
- Investors are able to spread their risk by investing a total of, say $100,000, and having this
investment broken up into lots of $10,000, which are invested into separate mortgages;
- The investor contributes to a loan that is secured over specific property rather than forming part
of a bulk fund that could be secured over a large number of properties that can change over time
without the contributors' knowledge or consent. A contributor who invests in a contributory
mortgage can retain a significant degree of control by vetting and approving each investment
proposed to them.
- The contributor's consent is required to the investment and before such consent is provided, a
valuation report prepared by an independent registered valuer is provided to the contributor for
their perusal and approval.
What types of property are accepted as security for Contributory Mortgage loans?
Loans are offered to parties which are able to provide security in the form of residential property. The security will always comprise a first mortgage at no more than:
- 70% of the property's value in the case of a specific authority;
- 66.6% of the property's value in the case of a general authority; or
- 50% of the property's value in the case of vacant land.
All values are established by a registered New Zealand valuer. Lending will not be made in relation to development projects which have caused so much distress in the finance company industry recently.
What is the return a Contributor receives?
One of the main advantages of a
contributory mortgage is it develops a very
close relationship between the borrower
and the lender. This enables each party
to avoid the significant costs of a bank or
finance company intermediary.
The interest rates offered to contributors
are normally significantly above those offered
by trading banks and similar institutions.
The current rate received by contributors
is 8.5% per annum net of all fees and other
charges. This is normally paid monthly by
the borrower to the management company
and then direct credited to the contributor's
nominated account.
What information is provided to a Contributor prior to investment?
The decision to invest is made following receipt
of an application by a borrower together with a
comprehensive package of supporting information
that will identify the value of the property being
offered as security; the ability of the borrower to
meet the repayment obligations under the loan
and a credit report of the borrower. The package
will include a registered valuation, bank statements,
credit report, statement of assets and liabilities,
statement of income and expenditure etc.
The decision to recommend the proposal to
the contributors is made by a security panel
knowledgeable in best practice banking and
security assessment. Only when it has passed
this initial screening process will an application be
forwarded to contributors for their consent. The
contributor must receive a copy of the valuation
of the property and a brief outline of the proposed
investment before they are able to give their
consent, unless they choose to provide a general
authority which allows investments on their behalf
within the agreed parameters without seeking the
contributor's consent on each occasion.
We believe contributory mortgage investments
are an investment that warrants inclusion in an
investment portfolio for individuals seeking a
sound return on capital which also provides an
opportunity to spread investment risk while still
being actively involved in the decision making
process relating to their funds.
Turner Hopkins have a Contributory Mortgage
Company which has been established to take
advantage of the benefits available under a
contributory mortgage investment. Please
contact Mike Newdick or Rachael Jhinku for
further information.
Make sure you are up to speed with the law before you drive this summer
This summer it will be an offence
to drive and use your hand held
mobile phone and to drive or
attempt to drive a motor
vehicle when a person is
impaired and their blood contains evidence
of the use of a controlled drug or any
prescription medicine.
Don't hand hold your mobile phone and drive
As at 1 November 2009 it is now only legal
to use a mobile phone to make, receive or
end a call when driving if:
- the driver does not have to hold or
manipulate the phone to do so (i.e.
the mobile phone is completely voice
activated); or
- the mobile phone is securely mounted to
the vehicle and the driver manipulates
the mobile phone infrequently and briefly.
Drivers are not allowed to create, send, or
read text messages while driving under any
circumstances. However, a driver may use a
hand held mobile phone if the driver is using
the phone to make a 111 or *555 call and
it is unsafe or impracticable for the driver
to stop and park the vehicle to make the
call. It is not Parliament's intent to make it
illegal for motorists to use SatNav or music
functions on their mobile phones, provided
these are mounted in the vehicle and are
manipulated infrequently and briefly.
An infringement fee of $80 and 20 demerit points
is the penalty for those breaching the ban on using
hand held mobile phones while driving.
Don't drug and drive
From 1 December 2009 a police officer will
have the ability to require a person to undergo
a compulsory impairment test if they have good
cause to suspect a person has consumed either
prescribed medication or illegal drugs. An
individual can be required by a police officer to
undergo an impairment test if they are:
- a person whom a police officer
has good cause to suspect has
recently driven or attempted
to drive a motor vehicle
under the influence of drugs;
or
- the driver of a vehicle that has
been involved in an accident, or if
they are unable to locate the driver, then a
person whom the police officer has good
cause to suspect was in the vehicle at the
time of the accident.
Proposed impairment tests include balance (the
one-leg stand test), co-ordination (the walk and turn
test), and the eye-pupil response test. If a person
fails the impairment test then a blood test will
follow to establish whether the person has taken a
controlled drug or any prescribed medication.
It is not an offence if the person consuming the
controlled drug or prescription medicine has done
so in accordance with:
- a current and valid prescription; and
- any instructions from a health practitioner
or the manufacturer of the drug or medicine.
It is also not an offence if the person has been
administered the drug or medicine by a health
practitioner without a prescription and they
have complied with any instructions the health
practitioner has given them.
The penalties for drug-impaired driving are similar
to the current penalties for driving under
the influence of alcohol; six months
disqualification of licence and a fine
of up to $4,500.
Conclusion
If you want to stay connected to
the mobile phone network while
driving then it is imperative you get
a hands free car kit or pull over safely
and legally to make or take a call. Alternatively,
simply turn your mobile phone off while driving.
If you are taking prescription medicine and you
intend to drive, ensure you take the medicine in
accordance with your health practitioners' and/or
the manufacturers' instructions.
Please contact Douglas Mitchell or any other
member of the traffic and transport team we have
at Turner Hopkins as they are more than willing
to answer any queries you may have regarding
these matters or any other area concerning the
use of our roads.
New Appointment
We are very pleased to announce
that Lianne Jamieson has been
appointed a Senior Associate of
the firm.
Lianne is a Registered Legal Executive
and has had a long association with
Turner Hopkins, having joined the firm
in April 1994.
She is also a Fellow of the New
Zealand Institute of Legal Executives
Incorporated.
Lianne has extensive conveyancing
expertise with a particular interest in
residential transactions and residential
and commercial land subdivisions
(including crossleasing and unit titling).
She has developed considerable
experience and specialises in advising
and providing banking and finance
clients with security for their advances
and enforcement of those securities
where necessary.
Lianne has built up strong relationships
with her long-term clients and is
committed to providing prompt,
effective and friendly services to her
clients.
“I enjoy working to assist our clients and
strive to provide practical solutions and a
thorough and efficient result”.
Lianne can be contacted by
phone on 486-2169 or by email:
lianne@turnerhopkins.co.nz
Slow down - caution required
An alternative form of agreement for sale and purchase is now
available. We recommend you continue to use the existing form of
agreement.
There is a potential hazard on the road to completing your sale or purchase free of disputes and hassles.
The existing form of agreement for the sale and purchase of property (the NZLS/REINZ
agreement) has been used in New Zealand for over twenty years. It is tried and
tested and has the benefit of years of settled case law and academic commentary.
We can usually expect that the vast majority of sales and purchases which use
the existing agreement will proceed to completion smoothly and without
any unexpected disputes.
However, all this could be about to change with the introduction of an
alternative form of agreement being promoted by the Real Estate Institute of
New Zealand. We believe that the new agreement could be a major roadblock
on the road to smoothly completing your property transaction.
The new agreement is being promoted by the Real Estate Institute as a new plain English agreement
which will be more easily understood by the ordinary person in the street. However, property solicitors
in general are very concerned by the potential problems which could arise from use of the new form
of agreement. The new agreement introduces new concepts and new terminology. This will lead to
confusion and uncertainty. Although the language used is “plain English”, the legal effect of the phrases
and words used is unknown. This means that there is potential for dispute between a vendor and
purchaser on virtually every aspect of the transaction. There are also new unexpected time frames for
settling various condition dates and issuing various notices which will catch out the unwary.
We think that the new form of agreement is particularly unfavourable to vendors. For example, the
agreement gives the purchaser's solicitor the ability to withhold consent to the title for anything that
“could” be registered on the title, that “might” affect a purchaser's future use of the property. This is
giving a purchaser much more scope to object to the title than is presently allowed under the existing
agreement. Another example is that the agreement requires the vendor to advise the purchaser of any
notice given that “affects or might affect the buyer's future use or benefit of the property.” This rings
alarm bells for us - a clause like this raises very speculative issues over the question of what “affects or
might affect” the property. The use of subjective terms is a big problem and we think that clauses like
this in the new form of agreement are simply opening the floodgates to many potential disputes.
We understand that the new form of agreement for sale and purchase is now available to Real Estate
Agents, but we have not seen any agreements on the new form as of yet. We think this might be
because of the general concern in the legal and property community about the problems with the new
agreement and the vast potential for dispute. We recommend that if you are contemplating selling or
purchasing property through a Real Estate Agent that you check to ensure that it is the existing ADLS/
REINZ agreement for sale and purchase form which is being used. If you have any doubts, please talk
to us before you sign the Agreement. We
recommend that you do not volunteer to
be a guinea pig for the Real Estate Agents
Institute to test out how well their new
agreement works!
Please contact Rachael Jhinku or
anyone from our Property Team if
you would like further advice on your
property transaction.
Spotlight on privacy
Most of us value the advances in technology that enable us to obtain information on just
about anything with a click of a mouse. We can stay in contact with family and friends
the world over through email, chat rooms and social networking websites such as
Facebook and Bebo. We shop and pay our bills online, check ski conditions on Mount
Ruapehu or the surf at Mount Maunganui all from our computers.
What most of us do not realise is that every time we use our credit card, surf the net or download
photos we are creating a digital footprint. Alarmingly, a recent study by International Data
Corporation (IDC) has revealed that the digital information generated about us on a daily basis
(dubbed our “digital shadow”), is now greater than the total information that we actively create
ourselves and it is going to continue to increase at a rapid rate.
A great deal of information about us is gathered through surveillance footage without us even
realising it. Every time you walk into a department store, bank, petrol station or supermarket you
are more than likely being filmed through closed circuit television (CCTV). CCTV is also used on
many central city streets; Auckland's Queen Street alone has over 100 cameras operating, not to
mention the cameras monitoring Auckland's motorways.
The Privacy Act 1993 requires that a person should be made aware that information is being
gathered about them and the purpose for doing so. A Hamilton City nightclub came under scrutiny
last year when the use of CCTV footage revealed a patron causing damage. The cameras were
located in the nightclub toilets and the patron was not aware he was being filmed as there was no
signage indicating that cameras were in use.
The release of the New Zealand edition of Google Street View has also been controversial. It is
created from millions of photos taken from cars equipped with cameras that travelled the country
taking images of our streets. The result is that anyone with access to the internet can take a virtual
walk down your street and view the surroundings. Concerns raised about identification of people
and vehicles have been addressed by the blurring of faces and licence plates. There is also a facility
to report a concern about a particular image. This may be of small comfort as by the time the image
is discovered, the damage could have already been done.
Privacy Commissioner Marie Shroff has identified privacy and data protection as being one of the
biggest issues of our time, and warned that the misuse of personal information, identity theft and
fraud are all dangers that should not be ignored. In response, the Law Commission is currently
undertaking a four stage investigation into privacy issues. Stages one and two were completed in 2008.
These stages involved an assessment of privacy values, changes in technology, international trends
and implications for New Zealand Law, and consideration of whether
the law relating to public registers required systematic
alteration. In stage three, the Law Commission
will investigate the adequacy of
current civil and criminal
law in dealing with
invasions of privacy.
In the final stage, the
Law Commission will
review the Privacy Act 1993 and
make suggestions on how it can be
changed.
The Privacy Act itself is often misquoted and misunderstood. If you have any
issues regarding the collection, storage, and use of your personal information,
please do not hesitate to consult the team at Turner Hopkins for advice.
Snippets
Consumer Guarantees Update
Can a consumer take it upon themselves to
arrange for the repair of defective goods and
then claim the full cost back from the supplier
or, must the consumer first give the supplier an
opportunity to provide a remedy?
A 2008 High Court decision provides the answer
– the consumer must first afford the opportunity
to the supplier to remedy the defect. This is in
line with the general policy of the Act that the
suppliers of goods are liable to provide remedies
as they, and not the consumers, should bear the
risk of defective goods.
Humor
Who's the Boss?
A legal executive, an associate and a partner of
a large law firm are walking through a city park,
when they spotted an antique oil lamp.
The legal executive picked it up, but both the
associate and partner grabbed for it, arguing that
they found it first. Their tussling had the effect
of rubbing the lamp, and to their shock a Genie
emerged in a great cloud of smoke.
The Genie announced, “In gratitude of your freeing
me from the lamp, I grant you three wishes. As
there are three of you, you each get one wish.”
The legal executive blurts out, “I want to be in the
Barbados, sipping cocktails with a gorgeous movie
star.” Poof! The legal executive was gone.
The associate, excited by the events, stammers, “I
want to be in Hawaii, relaxing on the beach with
a professional hula dancer on one side and a Mai
Tai on the other.” Poof! The associate was gone.
“You're last,” the Genie says to the partner,
“What is your wish?”
The partner replied, “I want those two back in
the office after lunch.”
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