Case Notes
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Investment advice - accessing funds - investment frozen - interest free loan - provisional settlement
In September 2006 Mr O sold a family home with a view to purchasing a section to build a new home on. As a result of the sale Mr O and his wife had $350,000 in their savings account with the bank. Shortly after this deposit the bank approached Mr and Mrs O and suggested they talk to one of the bank’s financial advisers to obtain a better interest rate than they were currently receiving.
The bank’s representative advised them to move their funds into a stable capital portfolio which was split between four recognised mortgage funds. Mr and Mrs O told the adviser they required a low risk investment with funds available on 30 days’ notice.
In February 2007 Mr and Mrs O found a suitable section and paid a deposit with an expected date of final settlement in late March 2008.
When this date was approaching they notified the bank that they needed to withdraw the funds, only to be informed that one of the mortgage funds had been frozen. This resulted in a shortfall of approximately $100,000 in the funds which were needed to continue with the building of Mr and Mrs O’s new home.
Two payments were received from the frozen fund, reducing the shortfall to $88,000.
The bank offered Mr and Mrs O an interest free loan over a three year period on the understanding it was secured by a second mortgage on Mr and Mrs O’s property and that they assign all rights in the frozen investment to the bank. The bank’s offer was made on the condition it was accepted as full and final settlement of their complaint.
Mr and Mrs O were concerned the frozen fund might not be fully accessible within two years, leaving them with a debt to the bank that they would be unable to repay when it fell due. This would also have been the case if there had been a shortfall in the funds after winding up the investment. They simply wanted the bank to take over the investment with no strings attached.
The matter was referred to me.
My investigator was then able to facilitate a resolution whereby the bank agreed that the offer was an interim settlement and that it would look favourably upon any requests for an extension to the interest free loan if the winding up of the mortgage fund had not been completed by the end of three years. The bank also agreed that I would not be precluded from considering the complaint further if necessary.
The complaint was provisionally settled on that basis.