Landlords warned over BMV scams

Private landlords tempted by below market value or ‘no money down’ offers from property sourcing clubs may unwittingly involve themselves in fraud and risk costly fines or even jail.

Consumer champion, the Financial Services Authority (FSA), is warning some unscrupulous property sourcing businesses are massaging house values to extract cash from mortgage lenders.

The firms buy homes at up to 30% below market value from homeowners facing repossession or bankruptcy.

The homes are then passed on to private landlords at inflated prices, often with the property firms arranging mortgages.

The FSA has uncovered scams where property firms have asked sellers to dishonestly declare, on a home completion certificate, that they sold their property at a much higher price than was actually paid.

The firm then arranges a mortgage based on this higher price for the private landlord taking on the property and charges a ‘finder’s fee’ out of the proceeds for arranging the deal.

For example, if the buyer is paying £110,000 for a home, they want to borrow as much money as possible against the value, but lenders limit the borrowing to 75% of the sale price, even if the home is worth more.

To get round this, the BMV property business presents false documents stating the house was bought for £150,000, so the landlord can borrow £112,500 and complete the deal without putting any money in.

The problem is inflating the house price to obtain a mortgage by deception is fraud  – and can end up with anyone signing the mortgage papers going to court and facing a hefty fine or even jail.

“The value of a mortgage obtained through fraud is a crime,” said a spokesman. “Fraud can occur through providing false details, failing to provide information required by law or even where you know only that the information used by others, such as the price of a house sale, might be misleading or untrue.”

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