Tenant getting a mortgage - dodgey??

OhReally_2

Pimpslider wrote: »

Afternoon people. I’m after a little bit of Financial Advice please, regarding selling a property which I am currently renting out. It’s more to do with the process of how my tenant is obtaining the Mortgage and its legality (all figures mentioned are approximate).

My tenants Financial Advisor wants me to say to our Solicitors that I am selling it for £300,000, but in reality I only want £250,000 (it’s true value). I believe this is to over-value the property so my tenant can get a suitable mortgage to cover the £250,000 I want for the house. I’m not entirely sure how the difference (£50,000) is being covered.

The Financial Advisor says, prior to the sale/completion, I sign an ‘Agreement’ with them in that when the £300,000 is passed between our Solicitors we agree to pay them (Financial Advisors Company) back £50,000 in costs/building work etc. Therefore I get the £250,000 I wanted and the tenants get a Mortgage. :undecided

The Completion Statement from my Solicitor will state Sale Price of £300,000, minus disbursements/costs (inc. the £50,000) and leave a Net of £250,000(ish), which I will pay Capital Gains on.

It seems doable…but something just doesn’t sit right with it. I’ve served the tenants their Section 21 and everything is above board my end. They’ve been great tenants for years but sadly I need to sell due to personal reasons.

Hopefully a helpful advisor can advise me!

What does your solicitor have to say about this proposed arrangement?

It is, afterall, what you are paying him for!

It sounds like he is an agreement with it ... :cool:

Pimpslider

I haven't instructed a Solicitor yet OhReally.

OhReally_2

Pimpslider wrote: »

I haven't instructed a Solicitor yet OhReally.

Then how can you be sure of this?

Pimpslider wrote: »

...The Completion Statement from my Solicitor will state Sale Price of £300,000, minus disbursements/costs (inc. the £50,000) and leave a Net of £250,000(ish), which I will pay Capital Gains on...

Sounds like it wasn't just me that was consfused; sounds like the buyer thought you had a solicitor too.

Pimpslider wrote: »

My tenants Financial Advisor wants me to say to our Solicitors that ...

I suggest you instruct a solicitor asap.

Pimpslider

I was concerned about paying Capital Gains on £300k rather than £250k. She explained that I would not directly receive £300k so would therefore not pay Capital Gains on it. She then went on to explain the Completion Statement breakdown as detailed.

markhig2

It's mortgage fraud..

The buyer obviously doesn't have the deposit and the FA is trying to get him the property by any means.

This would only work if the house actually values up to 300K, the surveyor would have a figure of 300k and agree or disagree with the value.

If they want to do a legit deal at 250k+ then why not, but do not continue with the deal that has been proposed.

Pimpslider

Cheers for the comment Mark. I have since rejected the sale in this manner and informed the FA.

Pimpslider

I have found this handy piece of text from the Financial Conduct Authority website at http://www.fca.org.uk/consumers:cool:

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.
You can see more tips on what to do if you are having problems paying your mortgage from the Money Advice Service.
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 you are considering a sale and rent back agreement you should check the Register to ensure the firm offering it is authorised to do so.
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.

Flashmanchop

Sounds like the old BMV Property NMD trick.

Very Very naughty. Especially naughty for people whom should be trusted to be bringing the idea up.

Pimpslider

Interesting Flashman. Thanks. Great info.

Fake ‘no deposit’ deals

What they are?

‘No deposit’ or ‘no money down’ scams were popular in the middle of the ’00s and are resurfacing now. ‘Property Clubs’ will market a BMV (below market value) property for, say, £255,000, with the promise that the investor wouldn’t have to put a penny down. The investor then applies for a mortgage from a lender who’s been presented with a survey for the market value of £300,000, thinking that the application is for an 85% LTV buy to let mortgage. Effectively, the lender has been duped into fronting the full purchase cost.

To a naïve investor, the small fee payable to the club and the agreement to use their ‘recommended’ broker, conveyancer and surveyor are far better than the thousands they’d have to fork over for a deposit. In fact, it probably seems too good to be true.

Why to avoid them?

“If something seems too good to be true, it probably is”; a maxim as true for the UK property market as anywhere else. You can’t get a 100% buy to let mortgage – no reputable lender will offer one, and taking one if they did would be widely agreed to be a bad move.

If you see one of these circumspect property clubs, run a mile. The practice is tantamount to mortgage fraud, and at the very worst, you could be considered party to it.

markhig2

Yeah that's exactly it,a lot more detail than me! Glad you didn't go ahead