How the buy to let mortgage frauds were carried out - Part 1 - by David Lawrenson of Lettingfocus.com.

Ah, here we are at the eve of New Year 2009 and we really are at the end of a fascinating year.
One of legendary investor Warren Buffett’s most well known sayings is “It’s only when the tide goes out that you can see who was swimming naked.”
As stock and property markets have tumbled, so with a sad inevitability, we start to see the sharp practices and downright frauds come to light which were once hidden in the fog and haze of the bull markets.
In the stock markets, just last week, the appropriately named Mr. Madoff emerged into the sunlight and into prison as his unique pyramid scheme collapsed.
In the residential property market, it now appears that there have been quite a few frauds taking place off the back of the boom in new build flats which were bought mostly by novice buy to let investors.
In this weeks and next weeks blog I’ll look at exactly how the fraudsters were able to pull off the fraud and who they needed to co-opt to do it.

THE RISE OF THE IDENTIKIT NEW BUILD CITY CENTRE FLAT
To understand this a bit more though, you need to go back in history a bit and understand the background.
Back in the years 1999-2003 smart people had already made quite a bit of money in buying and letting property.
Prices of residential property in most areas were up nicely from their 1992-1994 lows and rental yields were high.
Naturally enough other would-be property magnates saw this and wanted a slice of the pie too.
Smart property investment companies, syndicates and clubs recognised this growing need as well and set themselves up to bulk buy flats from builders which they would sell on to buyers (mainly investors) who would be attracted by some snappy marketing – eg You Too Can Make a Passive Income in Property.
The flats looked great in the marketing brochures – smart new pads in city centres that would be desired by an allegedly endless stream of young professionals eager for rented accommodation.
(It didn’t occur to many investors that the stream of young professionals would be limited, that they would eventually want a more suitable property with a garden for the kids or that the massively increased stock of the same accommodation would have a downward effect on flat prices and rents, but hey, that’s a different story.)

BIG DISCOUNTS ON NEW BUILD FLATS OFFERED
The builders were happy to sell these boxes in bulk offplan as this helped their cashflow and they eagerly offered generous discounts of up to 30% to the property investment companies to encourage them to bulk buy in this way.
So far, so good.
No fraud yet and it has to be said that most property investment companies doing this were not fraudsters.
In part two next week I’ll look at how these discounts, the presence of real of fictitious secondary buyers, sloppy valuations and the lack of transparency in the mortgage process allowed the mortgage frauds to happen.
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BUYING AGENTS AND PROPERTY FINDERS
Don’t forget at LettingFocus.com we also act as buying agents and property finders, helping people to find property either for them to live in or as a property letting proposition. Read this article to find out more about BUYING AGENTS & PROPERTY FINDERS and get in touch if you would like us to act for you.
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.
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Buying Agent and Estate Agent - A Potentially Incestuous Relationship?

Good buying (or property finding) agents should know their patch well and they will have bought quite a lot of property in the area for their own account and / or for other buyers.
The property finders work for their clients to find properties for them.
They take the hassle out of the search process and should get good prices from agents and other sellers by using their buying power and knowledge of the market.
The fees they charge to their clients will involve an up front registration fee and a final finders fee.
The finders’ fee may be based upon say doing a detailed report on 15 properties for which a fee of upwards of £2,000 will be charged.
Alternatively, the fee will be based on the price of the property purchased - 1.5 per cent to 2 per cent is normal. All these charges will generally have VAT on top and the registration fee will be at least £500 plus VAT, which is normally deducted from the final fee.
And for the estate agent, the existence of buying agents makes their job that much easier.
A property comes up where the estate agent knows he has a buying agent waiting for exactly that kind of property for a client.
The estate agent knows the property can be sold easily with a minimum of aggravation.
Indeed, to make sure he gets the business from other estate agents, the estate agent will make it known to the vendor that he has a buyer just waiting to snap up the property.

Reduced Commission
In these circumstances, if the estate agent is up against other estate agents, he may well be confident enough to reduce his commission to get the business, because after all, he won’t have the usual marketing expenses to incur on this sale.
The buying agent will insist that the property is taken off the market - and the vendor will normally agree to this.
The danger is that the relationship between the two sets of agent becomes too incestuous and the vendor loses out or, in the worst case, both the buyer and seller get "ringed" with the agents pocketing commission for doing a duff job.
I don't think that happens often.
All estate agents I have ever dealt with a pretty straight, but the damger does exist.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of landlord information.

Hello, I’m David Lawrenson.
I have been a landlord and property investor myself for over 25 years and am author of “Successful Property Letting” – which has been the UK’s top selling commercially published property book for the last 3 years.
Our main business is at a corporate level for organisations - both public and private companies.
We provide consultancy for banks, local authorities, social housing providers and other organisations – helping them with their landlord facing or buy to let product strategies and services.

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We also write for property websites and are regularly quoted by the media. In addition, we have written articles for numerous publications including The Independent, The Telegraph and quality landlord websites.

MENTORING
For private landlords, we also find some occasional spare time to help landlords and property investors make money in property by coaching them in ways that work, which are ethical and which involve minimal risk to the investor.
We pride ourselves on giving independent unbiased buy to let advice on either a one to one mentoring / coaching basis or through our occasional group seminars.
Unfortunately, in the UK today, property advice in the UK is still largely unregulated and what counts as “good advice” is too often more about making the promoter money than giving useful information to the investor.
With no links to property firms, developers or bridging loan providers we can advise on where and what type of property to buy for investment and when to buy it. We also show you how to manage tenants properly.

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