Stop the fraud!

RecoveringAlcoholic

Did somebody mention:

Fraud?

http://www.citywire.co.uk/News/NewsArticle.aspx?VersionID=101089&re=2472&ea=102649&NewsPage=1&XDU=e913103c-d33b-4187-8d67-a505451f08bd&XDS=C&XDNG=True&XDKL=0&XDURL=http%3a%2f%2fwww.citywire.co.uk%2fNews%2fNewsArticle.aspx%3fVersionID%3d101089%26re%3d2472%26ea%3d102649%26NewsPage%3d2

Jorgan_2

I was told by a surveyor this morning that they had been instructed to deduct any incentives from the selling price on new builds & base the valuation on this new figure.

I

Arcaine

My wife and I bought a house for 170k from a developer and it came with a 5% deposit paid. So we arranged a 95% mortgage for the difference. I think I must be being a bit slow but where is the fraud? It is on the land registry at 170k!

Generali

Arcaine wrote: »

My wife and I bought a house for 170k from a developer and it came with a 5% deposit paid. So we arranged a 95% mortgage for the difference. I think I must be being a bit slow but where is the fraud? It is on the land registry at 170k!

The main fraud is this: if the bank lends you a mortgage of 95% of the value of a place they are expecting you to stump up a 5% deposit. It means 2 things:

-firstly that you can live below your means to the extent that you can build up a small deposit

and

-secondly (and much more importantly) that if they have to repossess and sell, there's £8,500 equity in the house to make up for any unpaid interest costs, the costs of repossessing and selling and any fall in value of the house.

You haven't paid £170k for the house. You paid £161,500 for it and the owner (the developer) told everyone you paid £170k.

CYBERCIDERSAVER

Arcaine wrote: »

My wife and I bought a house for 170k from a developer and it came with a 5% deposit paid. So we arranged a 95% mortgage for the difference. I think I must be being a bit slow but where is the fraud? It is on the land registry at 170k!

Okay scenario: (yes it is a little extreme but it's to illustrate the point.)

The house is a new build up for a hugely inflated price of 300K
Builder offers you a paid deposit of 10% = 30K
You have purchased the house for 270K
land registry shows 300K as the price paid.

With me? right. Surveyor comes around to value a nearby property and as part of the valuation, does a check of the local prices in the area.

Your next door neighbour gets a valuation of 295K because you "paid" 300K. Do you see? The house prices are based on a price that was NEVER paid. Now, if you call it what it actually is... a discount of 10% so your actual purchase price is 270 and that's what appears on the land reg, it's transparent and everyone knows the real value.

Also your house is actully only worth 270K. If your mortgage is 270K but the bank believes they have given you only 90% of the purchase price, you get a better deal. Great, you think. But if you default and the bank reposses. It's almost a given that they won't be able to sell anywhere near 300K and probably not 270K, leaving you with an outstanding balance.

Your mortgage company's understanding of the risk involved in lending to you and the potential recouping of any losses is completely inaccurate so their losses will be much greater than forecast. Times this by 100 000 and you begin to get to a crisis like that of the USA sub prime market.

Generali

AFAIK, in the US this sort of practice is illegal as it is seen as mortgage fraud - the borrower and the developer are both in it together.

Trollfever

Working together to tackle mortgage fraud



Related information


Read further information on Financial Crime
The financial crime sector


Keynote speech by Philip Robinson, Financial Crime & Intelligence Division Director
CML Mortgage Fraud Seminar
13 February 2008


http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2008/0213_pr.shtml

SouthCoast

Bumped for the weekend readers.