Yacht brokers and my money

[castaway]

I'm about to hand over lots of money to a broker to complete on a second-hand boat purchase.

Do I have any protection if he goes bust whilst holding my money?

Do these guys have escrow accounts, or protection via their trade bodies ?

Would it be reasonable to suggest paying the broker his fee and paying the seller his money direct.

Presumably it is a criminal offence to trade if the broker was to be in this position ?

Of course I realise I can ask these Qs direct o the broker, but wish to be a little 'briefed' when I talk to him about this.

Am I worrying about nothing ?

I have no reason to suspect that the brokerage is anything other than honest solvent and decent business, but one does hear of these things happening.


Many thanks

Nick

 

[aluijten]

I'm not sure how it works in the UK but I just completed a transaction in Holland, buying a yacht via the biggest clown of them all, and even this guy had the sense of setting up a escrow account to handle the money involved. Don't forget that normally the broker does not own the vessel, so he has no formal title to the money, hence the escrow account.

 

[Sans Bateau]

I'd say it's good to be cautious. As you say the guy is probably fine, but? You dont know, you never do.

There should be no reason why (none that I can see) why you should not make two payments, his and the owner, sounds like a good idea. Maybe the owner would be keen on this happening, rather than loose the sale.

Just had a thought, what would be the situation if you were to buy the boat on finance, through a marine mortgage, which was then paid to the broker and he then went pop. Would you be responsible for the debt held by the mortgage provider? Mmmm.

 

[Tranona]

There is a very well established mechanism called a "Client Account" used by Brokers to hold the money, separate from their own account. If the Broker is a member of an association it is a condition of membership that they maintain such accounts correctly. Although it is possible for the Broker to access the account and take the money, in practice there is little evidnce this actually happens.

As a buyer, your concern would be that you did not get the boat because the seller did not get his money. The advice is to always pay the funds directly into the nominated client account so you have evidence that it went there. This creates the legal "trust" that clearly identifies that the money is yours.

The final part of the transaction is exchanging your final payment for title to the boat and there is no reason why you can't do that direct to the seller - but in reality that is not your concern as if you get the title to the boat if you complete through the broker - and usually more convenient.

All this detail is well covered in the RYA book on buying and selling second hand boats and information on how Brokers work is on the YDSA and BMIF websites.

Good luck with your new boat.

 

[maxi77]

I think the other thing is to transfer the money direct to the client account, not hand over a cheque, the cheque can be paid into the 'wrong' acccount.

 

[Tranona]

I think the other thing is to transfer the money direct to the client account, not hand over a cheque, the cheque can be paid into the 'wrong' acccount.

In theory the bank would not accept a payment by cheque clearly stating "client account" into his business account. You can ask for confirmation from the bank it has gone to the correct account, or better to make an electronic transfer so you get your own confirmation of where it went. Some advocate the broker having the client account at a different bank from his business account.

 

[ColdFusion]

But what safeguards are in place should the broker be unscrupulous and dip into the client account? Can a potential purchaser somehow recover the money paid to the broker or do they just become a victim of fraud? AFAIK it's the latter.

 

[Tranona]

But what safeguards are in place should the broker be unscrupulous and dip into the client account? Can a potential purchaser somehow recover the money paid to the broker or do they just become a victim of fraud? AFAIK it's the latter.

Yes, there is always a risk of fraud. However, despite all the hot air talked about the possibility, there do not seem to be examples of Yacht Brokers committing such frauds. Where people have lost money it has been because the funds DID NOT go into a client account.

When you think about it, the amount of money at risk (in a secondhand boat purchase) at any one time for the buyer is limited to the deposit -if any. The risk is greater for the seller because he can transfer title before he gets the money if the final payment goes through the client account. So the seller may want to arrange for the final payment to go direct to him.

 

[ColdFusion]

When you think about it, the amount of money at risk (in a secondhand boat purchase) at any one time for the buyer is limited to the deposit -if any.

The buyer of a secondhand boat via a broker usually pays the balance minus the deposit to the broker's client account by Bacs or preferably telegraphic transfer. Between this taking place and the bill of sale being handed over is the point of greatest risk to the buyer. Clearly this risk is not limited to the deposit.

 

[Tranona]

The buyer of a secondhand boat via a broker usually pays the balance minus the deposit to the broker's client account by Bacs or preferably telegraphic transfer. Between this taking place and the bill of sale being handed over is the point of greatest risk to the buyer. Clearly this risk is not limited to the deposit.

But these can be arranged to be simultaneous, for example by being in the broker's office with all the documents there and the exchange taking place when the confirmation of the transfer comes through.

Would have to be a pretty desparate operator to carry out a fraud in the short time that the money is moving from the buyer's account and the documents being handed over. If you are going to steal money I am sure there are lots more effective ways of doing it than in this kind of transaction!

 

[BurnitBlue]

The final part of the transaction is exchanging your final payment for title to the boat and there is no reason why you can't do that direct to the seller - but in reality that is not your concern as if you get the title to the boat if you complete through the broker - and usually more convenient.

I agree except for the problem I came across early this year in Greece. The Britsh boat offered was priced in pounds sterling the Greek broker claimed, that as he is a registered broker business in Greece I must pay him in Euro's. Especially his commission. He did not have a client account because he was not a member of a "British Yacht broker Federation" so I must also pay the asking price in Euro's into his Greek bank. The broker would then transfer the money to the seller back into Pounds sterling less his commission in Euro's.

No doubt it was all OK but the variable exchange rates and FX fees meant that I could not anticipate how much money I would have to take out of my bank.

There is one British Broker with offices in Greece and Turkey that has two seperate client accounts one for Euro's and another for Sterling. Way to go. So choose your broker with care.

 

[DAKA]

You can ask for the so called clients account details BEFORE you pay into it.
It should carry the phrase clients account, and be also written in trust, in other words the bank should be aware of its status and not just allowed someone to have added 'clients account' to the title.
If you are handing a lot of cash across you can also ask for your own dedicated clients account which only contains your cash and cant be mixed up with other funds such as the Brokers commissions from other sales that servilely erodes the status of the perceived clients account security.

None of the Brokers associations currently check the accounts are formulated correctly.

TSB have a clients call account that is specifically designed for this type of transaction where many other banks attempt to bodge a standard bank account.

Now a question please Tranona ,
Is it possible to have a written agreement that says once my funds are cleared the title to the boat is transferred into my ownership.
As such the exchange is automated on my cleared funds regardless of what happens to the documents/boat.

 

[Seajet]

You are right to be wary, nail down every detail !

There's a certain millionaire who used to have a brokerage, when things were going belly up ( or maybe as a result of ) funds from buyers were 'dipped into' to keep the company going, to no avail.

Result, lots of people lost lots of money each, meanwhile blameless bloke is a millionaire several times over...

 

[PerformanceSailor]

Be careful...

The odds for being victimized are slight...
but it can happen.
http://www.latitude38.com/lectronic/lectronicday.lasso?date=2009-07-17&dayid=300
(second story down. And this was a large established brokerage.)

 

[Tranona]

I agree except for the problem I came across early this year in Greece. The Britsh boat offered was priced in pounds sterling the Greek broker claimed, that as he is a registered broker business in Greece I must pay him in Euro's. Especially his commission. He did not have a client account because he was not a member of a "British Yacht broker Federation" so I must also pay the asking price in Euro's into his Greek bank. The broker would then transfer the money to the seller back into Pounds sterling less his commission in Euro's.

No doubt it was all OK but the variable exchange rates and FX fees meant that I could not anticipate how much money I would have to take out of my bank.

There is one British Broker with offices in Greece and Turkey that has two seperate client accounts one for Euro's and another for Sterling. Way to go. So choose your broker with care.

I am not sure the legal concept of "trust" which underpins client accounts in the UK exists in Greece, so even if he keeps a separate account for payments, it is likely that you would not have same level of claim over the funds.

I bought my boat in Greece from a dealer. Everything was priced in Marks (some time ago!) and I carried the exchange rate risk between signing the contract and the boat being delivered. Fortunately in my former life I taught International Finance so was comfortable with hedging my exposure by buying a forward. It is always a problem when one party has funds in one currency and the other wants it in his own. You have to come to some agreement with him as to who is going to assume the risk or hopefully how you are going to share it.

You are right to be cautious about dealing with brokers in other countries if you are not clear about the legal system. Most transactions will go through without any problems, but you need to know the rules for resolving disputes. I would think an escrow account could be one solution, but more cost and complication just when you don't need it. However, one good thing about buying a boat on the Greek register is that title is much more secure than in the UK, if a little bureaucratic and expensive to register changes in ownership.

 

[Tranona]

Now a question please Tranona ,
Is it possible to have a written agreement that says once my funds are cleared the title to the boat is transferred into my ownership.
As such the exchange is automated on my cleared funds regardless of what happens to the documents/boat.

Pete - I am not sure what you are asking for. Your contract will say that title passes once the funds pass. If you have paid, got title and in physical possession of the boat why would you want anything else?

 

[DAKA]

Pete - I am not sure what you are asking for. Your contract will say that title passes once the funds pass. If you have paid, got title and in physical possession of the boat why would you want anything else?

I am most likely concerned about nothing but it has been mentioned several times on the forum that you should be there for the exchange and take possession of the boat and documents.

Many of us are working and to take a day off work, drive possibly 200 miles just find funds have been delayed or just to hold an envelope of papers dosent seem a sensible way to spend time.

Is it required to turn up just to collect the documents or can completion take place automatically when funds are passed to the Broker's clients account.

 

[Lucky Duck]

There is a very well established mechanism called a "Client Account" used by Brokers to hold the money, separate from their own account. If the Broker is a member of an association it is a condition of membership that they maintain such accounts correctly. Although it is possible for the Broker to access the account and take the money, in practice there is little evidnce this actually happens.

While I agree that the chances of the puchasers money being used to fund the day to day running of the buisness are remote, is this not what happened with the BA Peters? Certainly some brokerage customers were faced with the situation of having payed the money but were without a boat.

 

[Tranona]

While I agree that the chances of the puchasers money being used to fund the day to day running of the buisness are remote, is this not what happened with the BA Peters? Certainly some brokerage customers were faced with the situation of having payed the money but were without a boat.

You have to look carefully at what was going on. The problem was that not all deoposits were paid direct into the client account, but into a normal business account and then (maybe) transferred into the client account. Therefore there was insufficient funds in the client account to meet all the claims. The court ruled that those who could clearly show their money was paid into the account had first call. It is a principle of the "trust" that you have to show the relationship was specifically established. I believe the balance after those who had the prior claim were paid was distributed to others who thought they had a claim.

It is that judgement that underpins the advice to ensure any monies are paid specifically into a client account.

 

[PeterGibbs]

I'm about to hand over lots of money to a broker to complete on a second-hand boat purchase.

Do I have any protection if he goes bust whilst holding my money?

Nick

None whatsoever. Client accounts and so-called agent managed escrows are no real protection either - the protection these devices purport is a myth because when the transaction goes bottoms up you cannot enforce them; so they are not worth the paper they are written on! Even monies deposited with solicitors may end up in prolongued and costly dispute.

For a pre-used boat purchase, keep the money in your pocket! A small deposit (5%) will suffice for a genuine transaction, and this will be advanced against a proper contract, preferably repayable on demand prior to completion at your option. Once the survey is over and you have had all the reparations made to your entire satisfaction and the vessel is ready to take over in its entirety, then and only then should you advance the remaining 95% against a proper receipt and whatever papers, receipts VAT paid history, etc etc you require.

Why on earth should you advance a penny more before being totally satisfied that all is
in order?

Good luck.

PWG