Mortgage Fraud Danger in Below Market Value (BMV) says LettingFocus

Is making money in property as easy as some people say?
Well, it’s not hard, that’s for sure, providing you know what you are doing.
On a scale of 1 to 10, where 10 is very hard (e.g. running a kids football team as I do and having to deal with some of the parents) and 1 is very easy, I would rate buy to let as a 4.
To keep it simple, it is really just about doing a few things right.
First, you find a property in an area where there is currently strong and ongoing future strong tenant demand for that property.
Second, you buy the property at a good lowish price and third, you find good tenants who will look after it and pay the rent on time.
Sounds simple – and yet so many people try to overcomplicate it.
Usually the companies who overcomplicate it are trying to sell property that is supposedly dirt cheap and which does not require you to put any or much money in.

Too Good to Be True
If you see a deal that looks too good to be true, it usually is.
Very often you will see such companies trying to promote “no money down deals.”
But please keep in mind these important facts……
Mortgage lenders will ALWAYS want to see that you have put some money into the property you are buying. They want to see that you have a stake in it.
And this cannot be funny money – it has to be YOUR money – not money you have borrowed from someone else or from another company.
It has to be YOUR money and you have to tell the mortgage company where it has come from – i.e. the source of the funds.
If you don’t tell the truth about where the money comes from, you have committed mortgage fraud and if you don’t tell the mortgage company the true price you are paying for the property – with all the kickbacks made clear – then you are again liable to be done for mortgage fraud.

Use Your Own Solicitors
Lots of companies specialising in marketing no money down deals will require you to use that company’s own finance arm and legal advisers.
This is because they will make some money from the legal team and finance co. Nothing wrong with that, of course.
But you should check out the cost first as it is often not cheap – and always make sure you have the deal and the property checked by your own solicitors and valuers.
Finally, if you are paying someone to source leads you ought to check out their track record very carefully indeed. Look at the Internet and ask for references.
There are some good firms sourcing below market value property -and we can help with that too - but there are some whose leads have proved to be not so much “below value” as “very poor value.”

Final Thought
It is important to have a mix of investments.
I always laugh when I see how people who manage equity and bond funds are very keen that investors avoid direct property investments like buy to let.
And many who promote buy to let often gloss over the risks and hard work involved to make it work.

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Realted article: BMV or Below Market Value

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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.
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Buy to Let Mortgage Fraud by David Lawrenson of LettingFocus.com. Plus, the case for Letting Agent Regulation.

Well what a year that was.
Not for a long time (since the Great Crash of 1929 in fact) have so many financial institutions made such a muck up of the economy.
Amazingly some bankers, such as John Varley of Barclays, think that WE still think they know enough to listen to their predictions on stuff like houses prices.
Well, I have long since stopped listening to these guys, preferring instead to look at property price fundamentals and reality.
But I’m amazed that other financial journalists report the predictions of senior execs at banks as they have proved so hopelessly inaccurate over the last few years.
And on that topic, full marks to Rosalind Renshaw writing in the Residential Landlords magazine who flagged up how wrong financial institutions were with their predictions on house prices last year.

REAL DEALS ON HOUSES AT LAST
Over the last few weeks the estate agents that I am pals with have started to contact me with real mark downs on London property.
These mark downs have at last started to make house prices in the capital look sensible (You may know from previous blogs that I have not bought in London for 5 years as I have considered prices far too silly.)
In London, I reckon we are now only about 8% away from the bottom for LEADING INDICATOR house price indices such as that from the Nationwide and Halifax (which are of course based on surveyor valuations. Expect ASKING PRICES to fall at least another 20%)
In the rest of the country there is much further for house prices to fall as reality has still to catch up in many places. For example, a close pal in Rochdale reports that asking prices there have barely budged downwards. In areas like this the correction is coming soon and anyone thinking of buying in such areas would be advised to sit on their cash for a while longer, I think.

LETTING AGENTS NEED GREATER REGULATION
This year, as I have predicted in the FT and Daily Telegraph, many new landlords will have a very negative experience of letting at the hands of a rogue letting agent. The full article is here: New Landlords Risk Financial Penalties - "Financial Times" (There is also a longer piece on all this in the pre-Christmas “Investors Chronicle” where I am quoted extensively.)
Good letting agents, of whom there are many, have long called for greater regulation of their industry.
I predict that 2009’s experience will prove that there is a really urgent need for more regulation because many “reluctant landlords” will fall foul of rogue letting agents.

PROPERTY FRAUD IN BUY TO LET
In my next blog I will look at how the buy to let boom allowed what looked like legitimate property transactions to be turned into fraud and how genuine buyers and dim mortgage lenders lost fortunes in the process.
I’ll explain exactly how the shady property deals were constructed and how some conveyancing solicitors, mortgage brokers and surveyors helped frauds to take place through negligence and incompetence.
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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, property speaker and I run this well known property letting and investment blog
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 any of 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. 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.