Cooper victims face ruin
BNZ is taking action to recover money it lent to some of the people who entered loss-making property investment deals with Glenn William Cooper, who is due to be sentenced early next month, after pleading guilty to dishonesty charges laid by the Serious Fraud Office.
The case is a reminder for property investors that, even if they feel they have been the victims of unscrupulous property spruikers, the banks still expect their money back.
Cooper has pleaded guilty to charges laid by the SFO (see sidebar), though none of the charges relate to the four sets of Auckland-based borrowers with the BNZ, who look likely to lose their homes as a result of buying properties they say Cooper promised would be on-sold for a quick profit.
Mortgagee sales have crystallised the losses of those investors, who bought the properties at inflated prices based on valuations supplied to them. Their lawyer, Geoff Bilkey, is calling on the bank for mercy and to do the "right thing" - by cutting a deal that will allow the families to keep their homes.
Bilkey claims that, in making the loans, the bank failed to stick to its own lending criteria, did not reality-check property valuations, failed in one case to recognise it was lending for a deposit on a property with no title, failed to take adequate steps to check loan application information, and did not once pick up the telephone to speak to the borrowers before lending.
Had the bank carried out the checks most people would expect of a responsible lender, it would never have made the loans, Bilkey says.
They are accusations the BNZ did not respond to, but the bank did issue a statement, which read: "In the spirit and good intent of our customer promises we've worked hard towards resolving this for our customers."
The customer promises referred to include this: "We promise if we stuff up for any reason, we'll fix it and do right by you."
But the bank does not appear to accept that it erred in the case of the four sets of borrowers Bilkey is representing, or if it did that the right thing is to forgive the loans.
"We've been completely transparent in our communications and processes and Bilkey has had access to our files," the bank's statement went on. "Because matters are at a stalemate, unfortunately proceedings are in the course of being filed, and we will have to let the court make a determination. A copy of the court judgement will be available, hopefully as early as June. While this is before the court we're unable to elaborate further."
Bilkey says BNZ has not produced all the documents he would have hoped for, including an internal fraud investigation report it prepared, and any supporting letters that were submitted to the bank explaining the intentions of the borrowers.
He also said had BNZ staff spoken to the borrowers, it would have realised they were financially illiterate, naive and trusting in the extreme.
Bilkey said while people may be critical that the borrowers were after a quick profit, they had not sought the deals, and had been introduced to Cooper through the medium of trusted people in their church circle.
Bilkey gives the example of Pitiau and Ngatokotai Tomokino, who entered into a sale and purchase agreement for a motel unit at 300 Lake Terrace, Taupo, on October 6, 2009, from a company related to Cooper, on the understanding that it would be on-sold rapidly for a profit.
The purchase price was $320,000 plus GST but, at the time, the title for the unit had yet to be issued.
That title was never issued, so the purchase was never completed, but the BNZ lent the Tomokinos, who work as a lowly paid storeman and seamstress, and who were then aged 51 and 61, the $86,000 deposit.
Bilkey believes the BNZ did not know it was financing a deposit on a rental property, and the loan application is blank in the space where the reason for borrowing is usually stated. Had the bank checked with the Tomokinos, it would have learnt what the money was for.
It would have been immediately apparent that the Tomokinos would never have qualified for finance to settle the rest of the purchase price, Bilkey said.
The $86,000 loan was secured over the Tomokinos' home in Mangere, which was supposedly worth $295,000, and on which they owed just under $140,000 to another bank - a loan that BNZ refinanced, leaving it with the ability to put the Tomokinos out of their home.
A letter from Justin Toebes Law acknowledges that the bank regards the Tomokinos, who have carried on paying their mortgage, as "good borrowers" and said it was taking enforcement action reluctantly.
Another of the borrowers are the Mairis, who bought one of the Taupo units for $320,000 plus GST, settling on March 27, 2009. Again the bank, through Justin Toebes Law, acknowledges the position of the borrowers, writing: "We understand they are members of the Cook Island community who were defrauded by Glen Cooper" though, as with the Tomokinos, the SFO charges do not relate to the deals involving units at 300 Lake Terrace.
The BNZ lent the Mairis - both laundry workers - over half a million dollars, which included refinancing their Mangere home.
The Taupo unit has now been sold at mortgagee sale for $180,000 and there is a shortfall, which Bilkey says is more than the equity the Mairis have in their home.
Without mercy from the BNZ, it appears the Tomokinos, the Mairis, and the two other sets of BNZ borrowers will end up having to sell up their homes, or have it done for them.
Legal precedent is clear on one point: banks are not responsible for vetting whether an investment a borrower is making is a good idea, and New Zealand does not have any responsible lending laws.
The families do not have the funds to take a civil case to challenge the bank's right to collect the money. An attempt to get a legal aid loan for the Tomokinos was unsuccessful.
Bilkey said: "The BNZ's position is that it isn't their job to determine whether a particular loan application stacks up from an investment point of view - BNZ v Geddes and Pope. My view is that they do have an obligation to undertake appropriate and prudent inquiries."
- Sunday Star Times