Mortgage Fraud and Below Market Value Property Plenty of Scams About

Though I try very hard to make sure I’m not on mailing lists for the “Buy Property Below Market Value with None of Your Own Money Down” brigade, I still get the odd email coming through.

Naturally, once you are on one mailing list, you quickly end up on lots of others – most of them flogging the same “Get Rich Quick” messages.

This is because these guys often share lists between themselves. Partly this is because “mutual backslapping” and endorsement is the very much the name of the game at the events that they host (in order to convince the punters) and partly it’s because many seem to eventually go bust and look to sell their list of potential “investors” (they never refer to themselves as landlords) onto to the next BMV company.

I had one typical email the other day.

As usual there was the usual list of properties in a northern town which sounded (to a Londoner like me) as cheap as chips.

Of course, relative to London (or any decent area in any city outside the capital) these properties are cheap but they are nearly always in very disadvantaged parts of (usually) provincial towns in England and Wales, in places where they almost cannot give property away and the streets are full of pit bull mess and the biggest local cash generator is the local drugs dealer and the pub next to the DWP Office.

Overvalued

A quick check at Rightmove and I was able to find better properties in the same postcodes for more than 10% less than the price they were offering the properties to me at (and more than 30% below what the company claimed was “true RICS market value”.)

It was the same on the rental side – here similar properties were also available to be rented at Rightmove for less than 20% below what they claimed was an achievable rent for these “high yield properties.”

And to have the honour of buying one of these overpriced properties from the sourcing company in my own sink estate all I had to do was part with a cool three thousand pounds or so, up front.

The companies doing the marketing often have a short track record, naturally. This one has been trading for three years, which is about as long as it takes for the HMRC to insist they file a tax return and just enough time for the company to go bust, potentially taking the up front fees paid by the unfortunate punters (most of whom aren’t that well off either) with them.

Mortgage Fraud

Of course, there was the all too usual exhortation to commit mortgage fraud – in this case because they would provide the deposit which would come via a bridging loan.

The punter is expected to tell a lie to the mortgage company that the deposit is from their “own funds.” However you cut it, it’s still a lie, of course and it’s still mortgage fraud because it is clearly not from “own funds” in the true sense of the meaning. As they say in the US, “Tell it to the Judge!”

Indeed anyone thinking they can get away with this should “save it for the judge” because whilst mortgage lenders are still playing catch up at  preventing fraud, they are very good indeed at pursuing any customer who commits it.

Now, I’m not saying all BMV operators operate like this. Some (and it’s now a very dwindling bunch) have a decent reputation but punters must still beware when dealing with them.

Last time I spoke to him, Paul Shamplina at tenant eviction specialist, LandlordAction was developing a good sideline in trying to recover money for punters who had paid thousands over to property clubs who were supposed to provide below market value properties and who had clearly failed to honour their agreements.

All Quiet on the Lending Front …..and from Journalists too!

Clearly, the mortgage industry or the FSA should be doing much more to police this kind of thing.  (In my work advising mortgage lenders on buy to let products I know that most have very little awareness of the scale of the frauds that are still happening.)

With the exception of the likes of The Investors Chronicle and the FT (where Claer Barratt and Tanya Powley have covered similar topics) we have seen very little reportage make the national press.

The reason for this is because the budgets at the nationals does not extend to paying journalists enough to undertake proper investigative reporting – which explains why so much of what you read about buy to let, property investment and the private rented sector, in the national and local press is well, “pretty average.”

It’s not the fault of the journalists – they are just not paid enough to make it worth their while. Outsiders would be surprised to hear that a typical 800 word piece on property in a national might see the freelance journalist paid £250. The result is a copy and paste job from the Internet.

Editors and readers cannot expect great insight or investigation on that kind of money.

So, whilst the mortgage lenders are still playing catch up and the mainstream press ignore what is going on, it’s still a case of buyer beware.

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