How the buy to let mortgage frauds were carried out - Part 2 - by David Lawrenson of Letting Focus
In part one last week I showed how the property market environment in the early noughties was right for buy to let mortgage fraud to flourish.
I explained how big discounts were negotiated between property companies and builders to shift new build boxes onto mostly novice property investors.
Now let’s look at what happens next.
The sales contract that the builder and the property investment company sign would show the full price but the builder hands back that discount at the time of exchange of contracts to the property company.
When the flats are built, the property company will simultaneously sell on the flat to their own buyers and keep all or some of that discunt, making a nice little earner for them. They may also charge a “finders fee” too.
Now, it must be said, SOME of these buyers will be real ones – very often people whose credit score would normally preclude them from buying conventionally. (And it is worth noting that some of the builder’s discount would often be paid back to buyers which was often used as a way for stretched buyers to buy with “no money down” using the discount as their deposit.)
OTHER buyers could be completely bogus ones who applied for a mortgage using false IDs and fabricated documentation. Some blocks in Thamesmead suffered particularly badly with this latter kind of buyer and in these types of cases the property company would be complicit in the fraud.
The key to all these frauds is that until September 2008, there was no obligation for the builder and property investment company to share information on the discount to the mortgage lender. The lender had to rely on the buyer to do this which, of course, makes the fraud relative easy to commit.
WHO WAS DUPED IN THESE MORTGAGE FRAUDS
To make this fraud work, the properly fraudster needed at least some of the following ingredients.
First, they needed a conveyancer. Whilst the conveyancing company would see the sale price on the contract they would not see the hidden discount between property company and builder. This changed last September. But one wonders how many conveyancers really knew what was going on.
Second, you need valuers who were too lazy to accurately value these new builds. Or maybe it was a case of more than just laziness -which is of course going to be up to the courts to decide.
Third, in the worst cases, the fraudster needed to set up a shell property company and get a load of fraudulent applications going in. This may also involve using REAL people with false IDs who then go and live in the flats until such time as they get evicted.
Fourth, you need dumb banks that were too ready to lend money to “people” - either real or imagined people - to buy these properties at far too high a price.
DAVID LAWRENSON AND LETTINGFOCUS.COM IN THE PRESS
Click here to read a selection of articles featuring my comments in the national papers during 2008: http://www.lettingfocus.com/pages/myarticles.html
We are having a break from blogs next week. We’ll be back on 22nd January with a new one.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the landlord and property letting advice experts.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book - Buy Successful Property Letting - How to Make Money in Buy to Let.
The new edition is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on sale and rent back.
I’m an expert freelance property writer and property speaker and I run this well known property letting and investment blog that you are reading now.
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general property letting advice for anyone looking to buy property for themselves or to let out.
In my work as a consultant I help private individuals with any aspect of buying property or buy to let.
What’s unique about lettingfocus.com is that we are independent property investment advisors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from these sources.
We simply give one to one unbiased advice and are often asked to evaluate other property investments.
In my corporate consulting role I also advise banks, building societies, housing associations and web portals with their buy to let and property products and services.
You can read more of my blog & find details of my networking, advice and property training programme at my website.Copyright: David Lawrenson 2008 and 2009. This blog is updated once a week.
WANT TO BE KEPT UPDATED WITH OUR LATEST BLOGS?
It’s easy.
If you are on the home page of our blog, go to the bottom of any post, and click on “LINK TO THIS POST” to bring up the page for a specific post, then hit END …and on the right you’ll see “Site feed.”
If you are already on a specific post page, just hit END and you will see the site feed.
You then just copy the link that comes up into your News Reader or News Aggregator. Even a non techie like me managed to do all this.
Please note if you have a website & are thinking of reproducing material here - that’s fine but we DO require the full links shown in each blog to be included, including also the links in this section. The full article including all links must be available to ALL VIEWERS of your site and not restricted to members.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
Please Contact Us button at our main site http://www.lettingfocus.com/ if you have any queries about this.
I explained how big discounts were negotiated between property companies and builders to shift new build boxes onto mostly novice property investors.
Now let’s look at what happens next.
The sales contract that the builder and the property investment company sign would show the full price but the builder hands back that discount at the time of exchange of contracts to the property company.
When the flats are built, the property company will simultaneously sell on the flat to their own buyers and keep all or some of that discunt, making a nice little earner for them. They may also charge a “finders fee” too.
Now, it must be said, SOME of these buyers will be real ones – very often people whose credit score would normally preclude them from buying conventionally. (And it is worth noting that some of the builder’s discount would often be paid back to buyers which was often used as a way for stretched buyers to buy with “no money down” using the discount as their deposit.)
OTHER buyers could be completely bogus ones who applied for a mortgage using false IDs and fabricated documentation. Some blocks in Thamesmead suffered particularly badly with this latter kind of buyer and in these types of cases the property company would be complicit in the fraud.
The key to all these frauds is that until September 2008, there was no obligation for the builder and property investment company to share information on the discount to the mortgage lender. The lender had to rely on the buyer to do this which, of course, makes the fraud relative easy to commit.
WHO WAS DUPED IN THESE MORTGAGE FRAUDS
To make this fraud work, the properly fraudster needed at least some of the following ingredients.
First, they needed a conveyancer. Whilst the conveyancing company would see the sale price on the contract they would not see the hidden discount between property company and builder. This changed last September. But one wonders how many conveyancers really knew what was going on.
Second, you need valuers who were too lazy to accurately value these new builds. Or maybe it was a case of more than just laziness -which is of course going to be up to the courts to decide.
Third, in the worst cases, the fraudster needed to set up a shell property company and get a load of fraudulent applications going in. This may also involve using REAL people with false IDs who then go and live in the flats until such time as they get evicted.
Fourth, you need dumb banks that were too ready to lend money to “people” - either real or imagined people - to buy these properties at far too high a price.
DAVID LAWRENSON AND LETTINGFOCUS.COM IN THE PRESS
Click here to read a selection of articles featuring my comments in the national papers during 2008: http://www.lettingfocus.com/pages/myarticles.html
We are having a break from blogs next week. We’ll be back on 22nd January with a new one.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the landlord and property letting advice experts.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book - Buy Successful Property Letting - How to Make Money in Buy to Let.
The new edition is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on sale and rent back.
I’m an expert freelance property writer and property speaker and I run this well known property letting and investment blog that you are reading now.
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general property letting advice for anyone looking to buy property for themselves or to let out.
In my work as a consultant I help private individuals with any aspect of buying property or buy to let.
What’s unique about lettingfocus.com is that we are independent property investment advisors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from these sources.
We simply give one to one unbiased advice and are often asked to evaluate other property investments.
In my corporate consulting role I also advise banks, building societies, housing associations and web portals with their buy to let and property products and services.
You can read more of my blog & find details of my networking, advice and property training programme at my website.Copyright: David Lawrenson 2008 and 2009. This blog is updated once a week.
WANT TO BE KEPT UPDATED WITH OUR LATEST BLOGS?
It’s easy.
If you are on the home page of our blog, go to the bottom of any post, and click on “LINK TO THIS POST” to bring up the page for a specific post, then hit END …and on the right you’ll see “Site feed.”
If you are already on a specific post page, just hit END and you will see the site feed.
You then just copy the link that comes up into your News Reader or News Aggregator. Even a non techie like me managed to do all this.
Please note if you have a website & are thinking of reproducing material here - that’s fine but we DO require the full links shown in each blog to be included, including also the links in this section. The full article including all links must be available to ALL VIEWERS of your site and not restricted to members.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
Please Contact Us button at our main site http://www.lettingfocus.com/ if you have any queries about this.
Labels: buy to let mortgage companies, buy to let mortgage fraud, landlord book, landlord help, mortgage fraud, property finders
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Tuesday, January 06, 2009.
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