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Blue Chip clients who entered joint venture deals with the company to buy Auckland apartments are in the worst position of any investors, according to two barristers assisting them.
Daniel Grove and Paul Dale, Auckland law experts acting for a large band of investors who stand to lose millions of dollars, said the joint venture arrangements were the worst scheme Blue Chip ran.
Those involved stood to lose the most money, not get an apartment they had borrowed for and potentially lose their own homes.
"These are by far the most complicated of the Blue Chip product," Dale said. "Regrettably, it appears that these also are the transactions where the investors face the most significant losses."
Grove estimated that hundreds of people were affected and said the situation was extremely serious, particularly where apartment developments had been scrapped.
"This is worse than the finance companies. These people are losing their homes. They financed an apartment by mortgaging their homes so this is not your life savings being lost but people's houses," Grove said.
More than 20 Blue Chip companies are in liquidation facing initial claims of more than $84 million.
About 3000 investors used the untapped equity in their family homes to fund apartments, but many units were never finished.
Grove and Dale made preliminary investigations into the schemes.
Investors raised money for an apartment not yet built by taking out a mortgage over the family home, the barristers said. Blue Chip reaped legal, lease, valuation and other costs.
In return, the company arranged the finance and guaranteed to cover the cost of the repayments and pay the investors cash, usually around $9000 a year each, they said.
Then, the property would be sold and the investors would be repaid and get 6 per cent of capital growth. Blue Chip would get 94 per cent of the capital growth.
Apartment projects where Blue Chip clients entered joint venture deals are all in Auckland and include QuBa on Tapora St, Bianco on Turner St, Barclay on Albert St and the Emily Place/Anzac Ave development.
People who entered joint ventures some years ago were in the worst position because many apartment developments were not proceeding. All the properties had been on-sold to other developers, the barristers said.
"Unless there is a remedy against some third party in view, it would be very difficult for you to recover any of your funds," Dale said.
Garry Abbiss, a Blue Chip investor of Palmerston North, said he entered a joint venture deal to buy a QuBa apartment in 2006, agreeing to use $170,000 equity in his house to fund the purchase.
Interest repayments are due on the loan, he said, but he wants to challenge the validity of the deal.
