Duped property investors still liable for BNZ mortgage
A couple duped into investing in overpriced Onehunga property have been ordered to pay BNZ the balance of their loan.
After meeting property developer Phillip Cavanagh and Raghu Aryasomayajula, Nutritionist Dean Geddes and his partner Angela Pope opted to enter into a property-related deal with them.
The essence of that deal was that they would purchase a house in Onehunga for $960,000, which would then be bought back at the completion of the sub-development to reduce the tax on paid by Mr Cavanagh and Mr Aryasomayajula. Mr Geddes and Ms Pope were to receive $20,000 for their role.
The property developers organised the loan for Mr Geddes and Ms Pope – they lied to the bank about the existence of a second property owned by the couple in Napier that had said had recently been sold for $190,000. The property did not exist.
The Onehunga property was never repurchased and the property was eventually sold at a mortgagee sale in July last year for $595,000 – BNZ is still owed $289,429.70.
BNZ had asked the courts make a judgment over whether or not Mr Geddes and Ms Pope should have to pay the difference.
The couple argued in court that they should not be liable because the bank was in a conflict of interest position and had breached its duty to them.
Their lawyer Peter Lowndes said in court that BNZ failed in its duty to the defendants in lending an amount in excess of the true value of the property and did not undertake all the usual checks required in a transaction of this type.
He added that Mr Geddess and Ms Pope were duped by Mr Cavanagh and Mr Aryasomayajula and that the BNZ was in some way complicit in their actions.
However, Associate Judge Raynor Asher said in his judgment that the parties chose to govern their position by contract. In such circumstances, the BNZ can be seen as the offeror (sic) of a commercial service, and the customers as the purchaser of that service.
“There were between the BNZ and Mr Geddes and Ms Pope no particular circumstances from which a relationship of trust could be inferred.”
“Mr Geddes and Ms Pope created their indebtedness knowing what they were doing and not fully disclosing it to their lawyer, so they could make a quick $20,000,” he said.
Mr Geddes and Ms Pope were ordered to pay $289,429.70 plus interest to BNZ.
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Comments and questions16
Are those developers associated with Mark Bryers?? Or are there more than one #$%#@ that takes advantage of people for their own gain, by fraudulent means?? .....and get away with it!!
The plaintiffs were after a quick buck.
I have no sympathy for them.
There are lot of people in this country who have gorged themself on cheap credit and are now suffering.
There are plenty of people looking for rainbows that do not exist.
They will have to declare bankruptcy and start again.
People who came through the great depression wouldn't be sucked in like this.
The whole community suffers from this type of deal.
Tax avoidance by developers, sub prime asset, Greed, foolish lenders and unbelievably foolish borrowers.
Shame on those involved.
How many others like this.
The issue is not weather BNZ owed the borrowers a duty, its weather BNZ had security in the real property, which obviously it did not. BNZ has a duty to insure the property it is using as security is adequate. It is qualified to make that judgment and took a secured interest. That the market changed and or the security was inadequate should not the liability of the borrower. If the bank is permitted to take a deficiency judgment over and above its secured position is to make a mockery of the notion that the property secured the debt. It does not, it only secures the debt to the limit of own value, BNZ ort to be held to that. Either the Court is in error, the debtors' lawyer is incompetent of NZ is operating under archaic English laws that favor poor houses and the like. Shame on NZ.
The debt and the security are two separate and distinct things. The debt is still valid even if the security is void or inadequate. The security is a collateral contract, not the principal contract.
What I was suggesting is that the BNZ ort to be limited to its secured interest. That the law in NZ allows the lender to reach beyond its security IS the problem, if in fact that still is the rule in NZ. If its is, and David seems to be confirming that, then my third option regarding archaic English law and poor houses would appear to be the valid one, and... shame on NZ for so being.
Steve P, I think you've got it back to front here. Banks these days primarily base their credit policy on assessment of repayment capacity rather than security. This means that the bank's loans should have a low probability of default. This being the case, reliance on security of property is diminished. Really the BNZ should be faulted for lending on or for the purposes of high risk property development schemes being funded by people who lacked the skill and judgement to manage the risk.
I agree in the case of investment schemes/commercial ventures, as I believe was the case here, non-recourse in inappropriate. For such ventures, some sort of fictitious entity might be more useful for shielding the investor, and I agree, such investor should be held liable.
So I might be a bit of topic here and apologize.
However and for clarity; from what I remember, in NZ the same rules apply to individual consumer home purchases and it was really those that I was referring regarding lending law; given that this particular matter was not that.
Non-recourse creates more risk for the lender, but it creates huge consumer protections that in a dog-eat-dog so-called “free-market,” individual consumers require, otherwise they tend to get wiped out in slumps that they don’t create or have control over and never get a chance to reestablish.
Recourse on the other hand has the consumer on the hook till death and like David says, it’s the ability to pay that matters now, not the value of the underlying security which is little different to credit cards. How this can blowup in the consumer’s face is easy to see by the actions of adjustable interest rates that the consumer has no control over. An unexpected increase in rates can easily create a situation where the asset is devalued (often the regulator’s intention) while at the same time cost is increased beyond the consumer’s ability to pay and default occurs. There is no longer an “ability to pay” and the bank is left with its security. The consumers as a consequence is left too shoulder the effects of these market events forever, or till they die, whichever comes first. When banks make a lot of bad loans they either are bailed out by the taxpayer, merged or through rates and fees, pass the losses on to their customers. The consumers need only make one bad loan and be in the same situation as the bank with no such benefits available to them.
A balanced playing field seems fair. If the ability to pay is the name of the game, fixed interest rates for the life of the loan should be available and if they aren’t non-recourse should be all that is available to the lender. It is hard to see how a consumer is expected see where interest rates and asset values are going to be in 5, 10 or 30 years time, when the bank can’t.
That may limit funds available for home lending… Banks did exactly that in the waning Muldoon years, (another example of banks manipulating markets in a manner not available to consumers), but that may lower the value of homes to realistic levels resulting lower and less risky loans.
Just a thought.
Steve P, in a free market loans can be 'non-recourse' if the borrower and the lender agree. Also, personal insolvency under bankruptcy law does not mean the unpayable debt is with the debtor for life.
The idea of low risk lending is to make sure the debtor's position has a good amount of flexibility and additional capacity to repay. For example, if a company's income before interest and tax is 6 times its interest cost, the company is considered to be in a strong position to repay, or, alternatively, refinance with another lender, and thus the probability of default should be low. Compared to 2 times interest earned, the borrower could have difficulty with a fairly modest change in fortunes. The same applies to personal borrowers: if they have low leverage and high income compared to interest cost, they can re-finance with another lender at market rates unless their fortunes really change for the worse. The risk in property markets are for both borrowers and lenders to manage. if you don't want exposure to that risk, just rent and put your money in the bank (or spread it around a few banks).
How many banks are now operating in the NZ home lending market? How many of those offer non-recourse home loans and how many offer at least a 15 year fixed rate? And, how many offer at least 15-year fixed rate non-recourse loans and if they do what is the interest rate likely to be over and above current market rates?
After this latest financial meltdown and the nonsense that has resulted, do you really believe in real free markets? NZ like the rest of us have managed free markets at best. The consumer almost never have has the same information as the seller at the same time and is hardly ever in the same bargaining position. At a bare minimum this is required in a free market. The notion that a lender and borrower are on an equal footing as far as theoretical free market capitalism goes is really quite a stretch in reality.
At the time this property sale would have been recorded, the industry and CV would be thinking the next property is worth this price or more. Good for some for the short term but bad for the country.
Is this not the underlying cause of the sub prime debt melt down?
We need happy and stable young families for a successful country. Housing cost's are a constraint
for almost all young people trying to start out and therefore a constraint to the country.
Tax rules favour an investor and disadvantage an owner occupier. This is wrong.
Yes this is very disturbing and I have been following this case from the very beginning. These two fraudsters duped very innocent and good honest people into buying property that they would set up, like sub divideable properties that they would either promise to develop, buy back or pay a fee after developing. Ramping up the price and moving on and not doing a thing to the property.
They had familiar contacts with BNZ and Westpac and would get loans approved with very little evidence that the borrowers were in a strong position to even repay the loans back to the bank. In some cases not even a formal application from the purchasers was submitted to the banks for Mortgage Approval. The real truth was that they had those Mortgage Brokers on their payrole in order to approve the loans without having to do the necessary checks.
Innocent and good family people were told their mortgages were approved and that Arya and Cavanagh would also assist paying off the mortgage during the "development stage" in order to take the pressure of the Duped Purchasers. They would overprice the properties and sometimes get false valuations to get the mortgages approved.
Evidently once they received payment for these properties they disappeared and left these innocent folks with an undeveloped overpriced property on their hands with a hefty mortgage that they would not be able to cope with.
They made false promises in writing to some of the duped purchasers saying they would complete the developments and buy back once complete, this was so untrue. A plot to get these buyers to commit to purchasing the overpriced properties. Thus leaving the Fraudsters with a hefty profit in their pockets.
Sadly these guys duped fellow workers, friends and good family couples.
Unfortunately today those very people have lost their jobs, their licenses to sell property as well as their very good names in the community and all the money that they had honestly earned. In some cases I have heard that some families have lost everything they had.
Not Fair !!! Very SAD SAD SAD.
And what of the friendly person at the BNZ who lent the money in the first place? Is he/she not a close friend of the small time crook Phillip Cavanagh? I take issue with the fact that this has not been well reported and infact not even mentioned. The BNZ needs to look internally to sort out its own in house crooks first.
It was Raghu Arya who was the mastermind in this entire fiasco, dragging in fellow workers for his own gain and then prying on innocent public figures.
He duped every investor into believeing they were purchasing a sound investment. Unfotunately for them an overpriced property backed up by obscure valuations and an easily approved mortgage. Followed by promises to develop on behalf of the investors, then simply walking away with cash in hand.
Rutheless - He did the Crime - He must now do the time.
Raghu Srinivas Aryasomayagula is architect of these deceitful schemes. Many of the innocent Indian people have lost their savings and homes due to his deceitfulness. Many have not even reported the matter to the law. These crooks have not even spared the older women not just the investors. Millions of dollars crossed New Zealand and law enforcement is unable to trace out the money. Insolvency protected them and he is living with tax payers money now. They raise again some other country with this ill gotten money.
These culprits should be punished with life sentence to stop further
robbing of the innocent people.
You got him wrong dude
HE is a nice chap came through a lot of tough times and fought through trials and tribulations
Yes His time has come For Redemtion and proving his innocence
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