Buying a new boat: Escrow account for deposit?

[dune16]

Hmmmm, I must admit, I hadn't given this much thought until reading this thread. I paid my dealer the 10% deposit at the time of order and will be due to pay them the balance a week prior to delivery. Will see if I have a restless nights sleep now thinking about this

 

[Sticky Fingers]

Our deposit would be 20% then balance a week prior. It's a lot to lose

 

[Tranona]

So, if a dealer were to offer to keep the deposit in his client account, it would be secure. The difficulty is that builders are increasingly asking for payments to be passed to them, particularly if (like my boat) the boat is being built specifically for the customer, rather than a stock boat for the dealer.
Read more at http://www.ybw.com/forums/showthrea...account-for-deposit/page2#6ukVRF8Ug5BrUi1L.99

I am afraid again this assumes the other party behaves themselves. How do you know whether he keeps the funds in that account or how they ware used? It seems to me in an ideal world the dealer would let you have a copy of his agreement with his bank demonstrating a client account was ring fenced and you would electronically transfer your money to that account. Even then it seems to me you are reliant on the dealer leaving the money in the account, because he and only he has control over those funds. There is a fine line when things happen between a business going bust with no malintent, and with degrees of deliberate fraud. The trouble is an action for fraud is just as time consuming and difficult.

So far as the O/P is concerned it is for all these reasons I still feel short of an external escrow deposting funds without the goods is always a risk and there is no perfect solution.

It does not work like that. The broker deposits the money into the designated account and provides the client with a copy of the receipted paying in slip or evidence of electronic transfer. This provides the connection between the client and the money as required to establish the trust. What you are describing is how client accounts tended to operate prior to the Opal case. The judgement in that case was widely publicised to all businesses that operate client accounts. As I reported above all recognised brokers have to use this revised structure and process.

In spite of all this hoo-ha there is scant evidence that any brokers (or dealers) have mis managed clients money - for all sorts of reasons it is a stupid fraud to attempt. However, our wonderful solicitor fraternity are past masters at robbing client accounts. Only last week one such learned gentleman was found guilty of stealing £1.2m from clients (aided by a compliant accounts clerk). THAT is why the Law Society operates its insurance scheme - because it needs to. However anybody who has tried to claim will tell you that holiday insurers are paragons compared with getting compensation from lawyers' insurers.

If you look back over the history of where boat buyers have lost money it has almost always been buying direct from boat builders who go bust. Although the risk seems greater with a dealer because many are small and poorly capitalised. On the other hand their cash flow is directly linked to selling individual boats and few hold stocks of built boats that they have paid for. Big builders operate a JIT production system as I described above, and although they will obviously have a long pipeline of components and sub assembly activity, the production time is short and payment is received at completion. So an active and well organised dealer should be able to manage his cash flow.

The real potential hassle is either getting warranty work done as this relies on the dealer, or problems with equipment fitted after build by third parties. Therefore having factory fitted equipment helps as it is more likely to be fitted properly. Buying a "simple" boat also helps. I have bought two new Bavarias, 15 years apart and both have been trouble free. The only warranty on the first one was leaky Rutgerson deck hatches and a blown head gasket and the latest one a couple of small niggles with the Garmin instruments.

 

[JumbleDuck]

It does not work like that. The broker deposits the money into the designated account and provides the client with a copy of the receipted paying in slip or evidence of electronic transfer. This provides the connection between the client and the money as required to establish the trust.

Unless the broker has been handed a great wad of cash and trots round to the bank with it, s/he would surely be paying in to the client account from another account, which I gather was the problem at OP. Would it not be more sensible for the buyer to pay directly into the client account? I've just bought a house, and that's how I did it - CHAPS transfer of the money to my solicitor's client account the day before completion.

 

[mainsail1]

Yes. To be clear I've no evidence whatever of a problem in this supplying dealer but for us this amount (even the deposit) is not "small change", it's taken years to save it in our boat deposit fund, so I need to have confidence that the money is safe...

Maybe I'm worrying over much.

As I have said there is definitely a problem and it is worth worrying about. I can tell you I had a very close shave with an escrow account and a new boat and I still shiver when I think what might have happened.

Another option may be to insist that a reputable firm of solicitors acts as stakeholders but obviously the dealer would rather have the money in his hands. Finally, don't forget you could pay the deposit by credit card if you have a high enough limit on it. As I understand it, that would then protect the entire deal but you may have to pay the dealer 2% extra for using the card.

 

[KellysEye]

> A third party escrow account handled by a solicitor or other trusted third party would seem ideal, but so far anything that looks like that has not been forthcoming.

Solicitor.

 

[maby]

Escrow accounts and Client Accounts all offer a very limited degree of protection. I've bought houses, boats and cars in the past - all with my deposit and any stage payments going into some form of escrow or client account - and at no time has the bank that manages the account got in touch with me to ask if it is all right to transfer the money out to another account - the broker/dealer/solicitor is in complete control of the account and can walk off with the money with no reference to you. There are cases of people losing money like this - including from accounts managed by "trusted third parties" such as solicitors.

If you're buying new, give a small deposit and tell them to take out a bank loan for any running capital they need to complete the boat. Tell them to include the cost of the loan in the price of the boat. If their bank does not trust them, then you certainly should not!

 

[Sticky Fingers]

That's an idea. I've paid a holding deposit (10k) the loss of which would a bit painful but not a disaster. Keeping teh deposit as low as possible in fact (almost) addresses the problem.

 

[pvb]

If you're buying new, give a small deposit and tell them to take out a bank loan for any running capital they need to complete the boat. Tell them to include the cost of the loan in the price of the boat. If their bank does not trust them, then you certainly should not!

That's an interesting proposition, and you'd presumably suggest that the full balance should only be handed over once the boat has arrived and has been commissioned.

 

[Tranona]

Unless the broker has been handed a great wad of cash and trots round to the bank with it, s/he would surely be paying in to the client account from another account, which I gather was the problem at OP. Would it not be more sensible for the buyer to pay directly into the client account? I've just bought a house, and that's how I did it - CHAPS transfer of the money to my solicitor's client account the day before completion.

Does not work like that. It is the record of the deposit into the client account that is key - as per the Opal judgement. This can be either an electronic transfer (I used a debit card over the phone to make my payments), cheque paid in or cash. It does not matter if the broker or the client pays the money in, provided it is clear who it belongs to.

Remember the terms of the client account require the broker to account for any payments made from that money. The timescales before accounting are usually very short - often only days, or the amounts relatively small, so the opportunity and potential gain from fraud is relatively small. This is unlike solicitors who often hold very large amounts for long periods of time with only periodic checks. This makes fraud potentially easier and amounts that go missing higher - as in the example I quoted earlier.

 

[Tranona]

Escrow accounts and Client Accounts all offer a very limited degree of protection. I've bought houses, boats and cars in the past - all with my deposit and any stage payments going into some form of escrow or client account - and at no time has the bank that manages the account got in touch with me to ask if it is all right to transfer the money out to another account - the broker/dealer/solicitor is in complete control of the account and can walk off with the money with no reference to you. There are cases of people losing money like this - including from accounts managed by "trusted third parties" such as solicitors.

If you're buying new, give a small deposit and tell them to take out a bank loan for any running capital they need to complete the boat. Tell them to include the cost of the loan in the price of the boat. If their bank does not trust them, then you certainly should not!

While the potential for fraud is there, for reasons given in my response to JD, the practicalities of carrying it out in a brokerage business and the potential gains mean it is not attractive - unlike solicitors!

 

[JumbleDuck]

Does not work like that. It is the record of the deposit into the client account that is key - as per the Opal judgement. This can be either an electronic transfer (I used a debit card over the phone to make my payments), cheque paid in or cash. It does not matter if the broker or the client pays the money in, provided it is clear who it belongs to.

Ah, right, thanks. So it wasn't that OP transferred from their working account to their client account, but that they did it with insufficient formality?

 

[maby]

That's an interesting proposition, and you'd presumably suggest that the full balance should only be handed over once the boat has arrived and has been commissioned.

Exactly. I've followed this approach with a major boat builder - they grumbled but agreed. New boats are not flying off the shelves - provided they are not losing money, there is no reason why they should not do it this way - unless, of course, their bank does not regard them as credit worthy - in which case you should not be handing them your cash either.

 

[ip485]

Does not work like that. It is the record of the deposit into the client account that is key - as per the Opal judgement. This can be either an electronic transfer (I used a debit card over the phone to make my payments), cheque paid in or cash. It does not matter if the broker or the client pays the money in, provided it is clear who it belongs to.

Remember the terms of the client account require the broker to account for any payments made from that money. The timescales before accounting are usually very short - often only days, or the amounts relatively small, so the opportunity and potential gain from fraud is relatively small.
Read more at http://www.ybw.com/forums/showthrea...account-for-deposit/page3#QU56eycUTtMAH0vS.99

Tranona

Fortunately I am not a solicitor, and I agree with many of your comments whcih are well informed.

However, I dont agree with your process on the Opal case or transactions of this type not because the theory is necessarily wrong but because with one party involved (the buyer) that might not get the process right, and another party involved (that might for various reasons add additional steps), if the agent or builder goes bust the result is a costly and long running legal dispute that most people cannot afford to pursue even if they want to do so. The practical consequence is an awful lot of pain and as usual with the law it is all very well to suggest a particular route should be safe we all know very well possession is 9/10 of the matter.

 

[Sticky Fingers]

Just to add to the debate, I just spent half an hour with the finance company on this subject.

The guy I spoke to understood the problem but had no "ready-made solution" if payment is needed some days / a week before handover. However, he was happy to explore an arrangement to place the finance drawdown payment into a lawyer's escrow account held in the finance company's own right but with the eventual onward fund transfer controlled solely by me, which seems agreeable.

 

[pvb]

Just to add to the debate, I just spent half an hour with the finance company on this subject.

The guy I spoke to understood the problem but had no "ready-made solution" if payment is needed some days / a week before handover. However, he was happy to explore an arrangement to place the finance drawdown payment into a lawyer's escrow account held in the finance company's own right but with the eventual onward fund transfer controlled solely by me, which seems agreeable.

You'd still be handing a lot of money to the dealer before you get the boat. If you have seen the boat, but it's not commissioned, you could pay the balance in return for a bill of sale transferring ownership to you.

 

[ashtead]

The problem is due to a lack of regulation of brokers - clearly a simple way of reducing the risk is for this to be assumed by the builder by way of risk transfer. While this doesn't obviously remove the risk completely the likelihood of insolvency of say Bavaria is probably less than that of Opal ( although as Southerly demonstrates its not impossible). Builders being a larger concern could of course be required to provide this coverage to brokers as part of the agency agreement with the broker. Clearly offering such protection is not attractive for the builders who would be taking on the credit risk of brokers and therefore I suspect in the absence of regulation little progress will be made. The problem arises though by the contract being with the dealer and no guarantee of performance by the builder . If stage payments are released these are into the brokers hands and if a broker is syphoning money from the client account into its office account in the absence of any checks there remains the risk of non payment to the builder. The only safe way to avoid the risk is to buy a stock boat I suspect as so far as I am aware no action has ever been taken against brokers who take money from client accounts by way of prosecution?

 

[Sticky Fingers]

Just spoke to dealer again and amongst other things they're going to find out what the specific arrangements on their client account actually look like, and what specific protections that this may provide.

The sequence for deposit is

1. I pay deposit into dealer client account
2. Dealer pays deposit to manufacturer from client account (invisible to me)
3. Manufacturer allocates build, creates a build contract with dealer and issues boat ID / HIN to dealer (invisible to me)
4. Dealer gives me the HIN

but steps 2 and 3 happen external to my contract which is with the dealer not the manufacturer. Having the HIN associated with my payment may well be useful in teh event of a problem but it's not ownership.

 

[ashtead]

Graham

What might assist is a letter to you from the brokers bankers confirming it is designated as a non statutory trust account and that it is distinguished from any account belonging to the broker ,that the money when with broker in this account will be held as trustee and that the bank will not combine the account with any other account or to exercise any right of set off or counterclaim against the money in that account in respect of any other money owed to the bank by the broker . I am sure your lawyer could draw up a fuller letter along these lines if the bank was prepared to give such reassurance in writing. As you have identified its what happens if step 2 doesn't occur which is the issue. Unfortunately being unregulated the concepts of client money rules mean little to brokers though.

 

[pvb]

The only safe way to avoid the risk is to buy a stock boat I suspect as so far as I am aware no action has ever been taken against brokers who take money from client accounts by way of prosecution?

I believe I've read of people buying a stock boat and subsequently finding out that finance had been secured against it by the dealer.