Mortgage rescue scheme + BR = fraud???

sillygirl73

Hi,
I am 3 months in to a mortgage rescue application which is going extremely slowly:mad:, but thats a different issue!
We are clients of our local CAB who are dealing with our debt and the advice is that BR is our only option , but to wait until the house situation is sorted.
I had a brief conversation with CAB today who have said that there is some issue about people who have gone through MR and who then go BR. It seems that we could be liable for fraud!?? She has advised that we continue with MR and just deal with things as they come, but now really worried.
The MR is progressing very slowly, still at the council stage and have not had any word for weeks.......... so not very hopeful, and am now thinking that we should look into renting and allowing house to be repossessed...............
Does anyone have any thoughts on the fraud issue?

Angiepange

Hi sillygirl

If you are happy to send me your email address via PM I have a document I can forward to you which mentions this issue, that you might find interesting to read. Will wait to hear from you hun.

Angie x

sillygirl73

Thank you Angie, will do x

immoral_angeluk

The main reason for waiting til after your MR has gone through before going BR is to make sure any shortfall is included in the BR. As for fraud?? It's not something I've come across and can't really understand their logic, however as MR/BR experiences are very dependant on which area you're in, it could be that you have a particularly finicky OR. So long as the house is sold for the true value I don't really understand how it could be fraud.

GREEDYGUTS

Never heard of this

poppy10_2

http://www.insolvency.gov.uk/freedomofinformation/technical/TechnicalManual/Ch25-36/Chapter33/part9/Part 9.htm

33.207 Mortgage to Rent – considerations for the official receiver where the bankrupt enters into the scheme prior to bankruptcy

In circumstances where a property has been sold in the years leading up to the making of a bankruptcy order, it is usually incumbent on the official receiver to establish whether there has been a transaction at an undervalue or, indeed, a transaction defrauding creditors.


The Act provides that, where a bankrupt has entered into a transaction for no consideration, or for consideration that is significantly less than the value of the property transferred, in the five years prior to the presentation of the bankruptcy petition, the court has power to set that transaction aside URL="http://www.insolvency.gov.uk/freedomofinformation/technical/TechnicalManual/Ch25-36/Chapter33/part9/notes%20to%20part9.htm#1"]note 1[/URL. It is this provision that many commercial “sale-and-leaseback” schemes may fall foul of (see Part 10).


Similarly the Act provides that, where a person has entered into a transaction for no consideration, or for consideration that is significantly less than the value of the property transferred with the purpose of putting the property transferred beyond the reach of creditors, the court may make an order restoring the position to what it would have been if the transaction had not taken place. There is no time limit on such an order.

In both transactions at an undervalue and transactions defrauding creditors, for a successful recovery there is a requirement that the property be transferred for no consideration, or for consideration that is significantly less than the value of the property transferred. One of the features of the Mortgage to Rent scheme is that the property is transferred to the RSL [Registered Social Landlord] at market value. This being the case, a challenge by an official receiver, as trustee, under either of the sections of the Act detailed above is unlikely to arise.



The official receiver should, however, obtain a copy of the valuation carried out prior to the sale of the property to the RSL and, where there is doubt over the accuracy of the valuation, carry out further enquiries (such as viewing the sale prices of similar properties in the area on web-sites such as nethouseprices.com) to satisfy him/herself of the precision of the valuation.


The professional valuation should, ideally, have been carried out by a chartered surveyor (a member of RICS - http://www.rics.org/uk). Where the valuation has been carried out by an estate agent, the official receiver should expect to see valuations from at least two estate agents. Official receivers should not hesitate to verify the valuation (having the purchaser cover the costs) where there is any doubt.

GREEDYGUTS

Thanks for the link

So mrs and then br should be ok, if I understood it right.

What happens if there is a shortfall due to repairs needed on the house and moneys are agreed to be repaid to the lender before br.

Angiepange

I think the fraud issue mentioned to Sillygirl by her CAB adviser relates to information from this document that was circulated to CAB advisers in July.



"If a client enters MR knowing there will be a shortfall, and signs a deed of shortfall which contains proposals for repayment of the shortfall (based upon the money advisers post rescue financial statement), and then goes bankrupt following the MR without any significant change of circumstances, they need to be advised of the potential serious implications. If a client enters into a deed of shortfall with the clear intention of later going bankrupt, it could be deemed as fraudulent behaviour and any debt incurred through fraud remains payable after bankruptcy. It may also constitute misrepresentation and could lead to the original transaction being overturned if a challenge were made by the lender with the shortfall. It could also lead tothe Official Receiver seeking a Bankruptcy Restriction Order. Specialist Adviceshould be sought.

Subject to the above, where a client declares themselves bankrupt after completion of the sale/rescue, any shortfall debt should be included as any other unsecured non-priority debt.

MR falls within the scope of Insolvency Act 1986 s339 and s423. To date we have not heard of any action being taken by the OR when a client who has been rescued then declares themselves
bankrupt. As Mortgage Rescue does not allow for undervalue sales (the valuation is conducted by a member of RICS), the funds paid to the lenders are 97% of the sale price, the other 3% charge is for administration (conveyancing,etc.) so any challenge to the sale by the OR on the basis of undervalue is unlikely to arise provided that a copy of the valuation is submitted to the OR when the client declares themselves bankrupt."

sillygirl73

Thank you all for your posts.......as it turns out we may not even get to this stage, poorly advised by CAB:(
Have a seperate thread with details x