Cashback from the seller to the buyer on house normal practice/legal?

Martian_Gentleman

Good evening,

How close is this situation reported in yesterdays Times Online?

Metropolitan Police investigated fraud and made eleven arrests related to property sold at an inflated price with inaccurate mortgage applications prepared for buyers. It was discovered when properties were ether resold or re-possessed and the true value was discovered by the lender. The full article is available here:
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2283035.ece

Best regards,

M.G.

Rick62

This whole thing is rather interesting. The reason the borrower is asking for cashback is probably to get a better mortgage, or to get a mortgage at all. He probably does not have a 10% deposit and so would be unable to get a self cert or sub-prime mortgage without engineering a 10% deposit by an inflated price with cashback to give him the required deposit, so yes he is trying to commit mortgage fraud.

Whats interesting is there is nothing inherantly different with cash backs from builders, they are being provided by the builders (not the lenders) and so are just as illegal (or not). The case in the link to the timesonline is the tip of the iceberg, as the practise in this case is how most newbuilds have been sold recently, although they may have gone one step further than most with invented buyers. Obviously now the chickens are coming home the lenders are looking more closely at their lax lending and finding someone else to blame and taking action on it. This is also why most lenders are now either not touching new builds or those that do are becoming smarter about checking the full terms of builders incentives and discounting them in arriving at valuations.

Either way its a relief that we don't share the lax lending that has contributed to the lending priblems in the states, including unlimited sub prime, self cert, fast track (without income verification), interest only, short term discounts/fixed rates reset after 2 years and cashbacks. Er.

silvercar

You would expect a valuer to value the property at its true value and discount any cash back deals. The scope to set up the deal to lower the percentage mortgage required will be limited by the valuation.

Richard_Webster

Solicitors acting both for a buyer and his lender have a professional duty either to cease to act or inform the lender about the cash-back. Obviously if the lender knows about as part of some deal with a builder there won't be a problem. (Personally I think lenders are mad to do this and they should discipline builders by downvaluing their inflated priced properties sometimes to bring them into line). That's a personal gripe - the thing is it isn't fraud if the lender knows about it.

Trouble is sometimes a mortgage broker tries to be clever and massages the truth in the mortgage application form and so when we tell the lender what is really happening they refuse to lend.

A seller and his solicitor would be involved and implicated if they knowingly agreed to a an arrangement where the price was inflated and part of it was never actually paid. Most seller's solicitors want specific confirmation from the buyer' solicitors in this sort fo case that that they have checked the point with their lender and it is OK. If the buyer' solicitor lies about this he will be up before the disciplinary committee and in danger of being struck off...

As a conveyancing solicitor I believe the information given in the post to be useful but I accept no liability except to fee-paying clients

m00m00

I have seen a couple of vendors offering 'cashback on completion' on right move, although the figures are not huge (relative to the deals)

my thinking behind these, is these kind of deals will appeal to people on 100% (or greater) mortgages, who don't have much capital behind them.


here is an example
http://www.rightmove.co.uk/viewdetails-9108321.rsp?pa_n=1&tr_t=buy

in this particular case, the property has been on the market since the beginning of may, and has just switched EA's. I would suspect they would get more interest by reducing the asking price (which is higher than anything else on that street has ever sold for), than trying to offer incentives such as cashback.