Mortgaged property levelled

diystarter7

You could not make it up.

Someone I'm close to bought a property 4/5 years ago in a very nice area. The property was run down, seriously run down. Their plans were always to level it and rebuild something bigger and better. 

They took out a mortgage of about 40% about 300k and some of it has been paid off.

Planning took a while as the property is a lot larger than before and a mini-mansion of the 17/18000's style larger property.

Covid delayed things.

This is supposed to be their main residence.

When he levelled it and talked to a friend in the pub the other night, the mate asked "did you tell the mortgage people" and my freinds response was, "of course I did."

In actual fact he has not. He told me last night and I said don't say anything to the lenders. He intended to remorgae it once built and expects for it to be worth at least double.
He will at that point move lenders. They have other properties and could raise the money to pay it off but early redemption fees, cGT, etc, etc

What do you think? Should he tell them and if he did, the lenders wont be too worried as they/my mate has other places, some money in the bank etc and the plot alone is easily worth  500/600k with planning permission. Thanks

eddddy

Well - it sounds like they've committed fraud (which is a criminal offence).

If they inform the mortgage lender what they've done (or somebody with a grudge tells the mortgage lender), I doubt the mortgage lender would take it well. On principle, I think the mortgage lender might take a very stern stance against somebody who has committed fraud against them.

The mortgage lender might be prepared to negotiate some kind of bridging loan or development loan to replace the mortgage - but it would probably be much more expensive.

Or they might simply cancel the mortgage, and demand full repayment. If it isn't repaid, they could repossess the land and sell it, and then sue the borrower for any shortfall.

I don't know if the mortgage lender would go as far as trying to prosecute for fraud. I gather that insurance companies persue private prosecutions against people who try to defraud them. I don't know if mortgage lenders do the same.


I guess their best bet is to keep very quiet about it, and hope that the mortgage lender never finds out.

canaldumidi

I go along with edddy's analysis of the potential crime and certain mortgage breah being commited.

I also second the likely responses by the lender should they be told or find out.

The honest thing to do would be to inform them and enter a dialogue to reach a compromise, hopefully short of cancellation/repossession. Lenders don't like doing this, so either paying off the mortgage or switching to a (more expensive) development loan if the current lender has such a product(?) might be feasible.

Howlong will the re-build take?ie how long till a new mortgage can be taken out? If not too long, edddy's pragmatic (if dishonest) approach might be the way to go....

diystarter7

He said he is chancing it. Thanks all, scary reading but it was a genuine oversight. He is as I am 100% certain he will repay the mortgage in full. Thanks for your insight, scary reading.

Annisele

diystarter7 said:

He said he is chancing it. Thanks all, scary reading but it was a genuine oversight. He is as I am 100% certain he will repay the mortgage in full. Thanks for your insight, scary reading.

I think the lender will find it difficult to accept "accidental oversight" as an explanation. "I accidentally forgot to pay my mortgage this month, here's the money" is plausible. "I accidentally bulldozed my house, having previously applied for planning permission to do just that" is somewhat harder to swallow.

I suspect the explanation will be more along the lines of "I accidentally applied for the wrong mortgage product" rather than the accident being the bulldozing. But residential mortgages are *much* cheaper than development finance, so your friend's actions do look pretty fraudulent.

The right answer is of course to come clean as soon as you realise the lender will have a problem. If you're the one telling your lender you made a mistake, then it looks much more like a genuine mistake than if the lender finds out some other way and you use the mistake argument as an excuse.

newsgroupmonkey_

Annisele said:

diystarter7 said:

He said he is chancing it. Thanks all, scary reading but it was a genuine oversight. He is as I am 100% certain he will repay the mortgage in full. Thanks for your insight, scary reading.

I think the lender will find it difficult to accept "accidental oversight" as an explanation. "I accidentally forgot to pay my mortgage this month, here's the money" is plausible. "I accidentally bulldozed my house, having previously applied for planning permission to do just that" is somewhat harder to swallow.

I suspect the explanation will be more along the lines of "I accidentally applied for the wrong mortgage product" rather than the accident being the bulldozing. But residential mortgages are *much* cheaper than development finance, so your friend's actions do look pretty fraudulent.

The right answer is of course to come clean as soon as you realise the lender will have a problem. If you're the one telling your lender you made a mistake, then it looks much more like a genuine mistake than if the lender finds out some other way and you use the mistake argument as an excuse.

I am enjoying this particular witch hunt.

Whilst I guess this could arguably be fraudulent and end up with some kind of CIFAS marker or something, it's no worse than say letting out your house without permission, which we know tens of thousands of people have done.

From what the OP said, the LTV was 40%. It's generally accepted that land is worth approximately 1/3 of the value of an overall property, however, the OP mentions that they've been paying off for 4/5 years, so chances are, the mortgage company could get their money back. Particularly as the property sounds like it was fairly worthless in its condition.

Quite honestly, if the OPs friend pays the mortgage back and the mortgage company haven't got a sniff of what's going on (which is unlikely unless someone has dobbed them in), they'll not care. They're not out of pocket, they've been paid their interest and made money from the deal.

eddddy

newsgroupmonkey_ said:

I am enjoying this particular witch hunt.

Whilst I guess this could arguably be fraudulent and end up with some kind of CIFAS marker or something, it's no worse than say letting out your house without permission, which we know tens of thousands of people have done.

<snip>

I suspect we're going to have to agree to disagree on this.

According to the OP, their friend lied in order to persuade a bank to give them a loan.

• The friend said to the bank something like "I want to borrow a few hundred thousand to buy this house to live in" - and the bank said "yes"

• If the friend had said to the bank something like "I want to borrow a few hundred thousand to buy a house, knock it down and rebuild it" - the bank would have said "no". Or the bank would have offered a much more expensive loan instead.

• Presumably the friend lied, because they knew what the bank would say if the friend told the truth.

That is a 'text book example' of Fraud by False Representation. (See the Fraud Act 2006 section 2  https://www.legislation.gov.uk/ukpga/2006/35/section/2)



Banks are regulated. They cannot 'turn a bind eye' to this , if they find out. 

• The bank have this on their books as a "low risk" residential mortgage loan.
• In reality, it is a "high risk" development loan.

They can't pretend that a "high risk loan" is a "low risk loan". Banks doing that is what caused the 2008 Global Financial Crisis. So the rules are now very strict.


Perhaps the bank will be lenient, if they find out. Or perhaps they'll want to make an example of the friend, so that the case gets reported by the press, and acts as a deterrent to other people who consider trying to defraud the bank.


(As I mentioned, insurance companies like to prosecute fraudsters, even though they haven't lost any money. They want the cases reported in the press to deter other people from attempting fraud. I don't know if a bank would take the same approach.)

diystarter7

NB to be clear the friend NEVER "lied" how on earth did you work that one out?

He got the mortgage a few years ago and was two-minded if to total refurb to live in or level and rebuild. When he levelled it, a mate in the pub jokingly asked him if he had told the lenders.  


I've known people to rent a room and not tell lenders and only when someone points it out they think and act.

It happens and he is not goig to tell them as he is paying the mortgage and the fix comes to an end in over a year and by then he'll have a new property on site worth loads more. The plot alone with PP is worth a lot more than the loan.

diystarter7

newsgroupmonkey_ said:

Annisele said:

diystarter7 said:

He said he is chancing it. Thanks all, scary reading but it was a genuine oversight. He is as I am 100% certain he will repay the mortgage in full. Thanks for your insight, scary reading.

I think the lender will find it difficult to accept "accidental oversight" as an explanation. "I accidentally forgot to pay my mortgage this month, here's the money" is plausible. "I accidentally bulldozed my house, having previously applied for planning permission to do just that" is somewhat harder to swallow.

I suspect the explanation will be more along the lines of "I accidentally applied for the wrong mortgage product" rather than the accident being the bulldozing. But residential mortgages are *much* cheaper than development finance, so your friend's actions do look pretty fraudulent.

The right answer is of course to come clean as soon as you realise the lender will have a problem. If you're the one telling your lender you made a mistake, then it looks much more like a genuine mistake than if the lender finds out some other way and you use the mistake argument as an excuse.

I am enjoying this particular witch hunt.

Whilst I guess this could arguably be fraudulent and end up with some kind of CIFAS marker or something, it's no worse than say letting out your house without permission, which we know tens of thousands of people have done.

From what the OP said, the LTV was 40%. It's generally accepted that land is worth approximately 1/3 of the value of an overall property, however, the OP mentions that they've been paying off for 4/5 years, so chances are, the mortgage company could get their money back. Particularly as the property sounds like it was fairly worthless in its condition.

Quite honestly, if the OPs friend pays the mortgage back and the mortgage company haven't got a sniff of what's going on (which is unlikely unless someone has dobbed them in), they'll not care. They're not out of pocket, they've been paid their interest and made money from the deal.

Thanks. He's made a genuine mistake and best policy is kept quite and carry on.

aoleks

in the grand scheme of things, no one cares, really, not even the banks .

eddddy

diystarter7 said:

NB to be clear the friend NEVER "lied" how on earth did you work that one out?

You said they lied...

diystarter7 said:

Their plans were always to level it and rebuild something bigger and better. 

They filled in application forms saying that they wanted a mortgage for a house to live in. But they really wanted a loan to redevelop a site.

Colloquially, that's called "lying". In legal terms it's called "making a false representation".


It's like telling a railway ticket seller that you're only travelling 2 stops, when you're really planning to go all the way to Edinburgh

Or telling HMRC that you only earned £20k last year, when you really earned £50k



Edit to add...

The situation might be less serious if they fully intended to live in the house when they made the application.

But they later decided to redevelop it, after the mortgage was granted.

(Not that I'm trying to put ideas in their head.)