FSA warns of mortgage fraud on quick property sales

Homeowners in mortgage arrears or facing repossession may receive an offer to buy their property for a discounted price in exchange for a quick sale. But the FSA warns these deals sometimes involve fraud which could lead to homeowners being prosecuted or losing housing benefits.

“Some homeowners facing financial difficulties may want to sell their property quickly to ease distress, or perhaps avoid repossession, and put the problems behind them.

“Some companies and individuals offer to help do this by buying the property at a discounted price in exchange for completing the deal quickly. The discount is often around 20% and can be as much as 35% below the market value of the property.

“The buyer may call these ‘below market value’, ‘BMV’ deals or ‘distressed property sales’.

“These offers may include a promise to complete the deal within as little as 48 hours, pay the sum in cash, help you avoid legal and estate agent fees, and guarantee the sale.”

Fraud in false sale prices

“We are aware that some quick and discounted property sales involve fraud, where the buyer asks the seller to state that the property is being sold for the full market value rather than the discounted price agreed.

“This is usually done so the buyer can borrow the full amount they have agreed to pay for the property from a mortgage lender, but the lender thinks they have paid a deposit for the property. In the current market, mortgage lenders will not lend the full amount needed to purchase a property and will require a sometimes substantial deposit. The bigger the deposit paid by the borrower, the more likely their mortgage application will be approved and the lower the interest rate charged.

“For example, if the buyer is paying £120,000 for a property they might not be able to borrow the full amount they have agreed to pay, even if it has been valued at £150,000. However, by telling a mortgage lender they are buying the house for £150,000 but only need to borrow £120,000 (or 80% of the inflated price), the buyer may be able to access some or better mortgage deals.

“Misleading the lender in this way is fraud and both the buyer and seller could face prosecution.”

How to protect yourself

“If a buyer asks you to exaggerate the price they will pay you for a property to ensure a quick sale, you should keep in mind that this is fraud and you could put the sale at risk and even face prosecution.

If you are receiving benefits, you should also consider that overstating the price paid for your property could affect your benefits payments as it may be assumed that you have additional money from the sale of the property.

“While a quick sale may be appropriate for some people there are other steps you can take to deal with problems paying your mortgage that might leave you better off, such as discussing your options with your lender.”

Caution over other home financing schemes

“In some cases you may be offered the option to remain in your property and rent it from the investor who purchased it. If so, this is a Sale and Rent back agreement and firms offering this must be authorised by us. If they are not shown on our Register with sale and rent back permissions, don’t deal with them.

“In addition, firms may offer you other solutions which appear to repay your debts and may allow you to remain in your home without selling it immediately. We urge you to treat all schemes like this with caution and see the consumer alert we issued last year on Lease Options and Exchange with Delayed Completion schemes.

What is mortgage fraud?

Mortgage fraud occurs where individuals defraud a firm or private lender through the mortgage process.

“The value of a mortgage obtained through fraud is a crime. 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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