Quick Property Sales Fraud Risk
The FSA has warned homeowners in financial difficulties who are looking to sell their home fast to beware of committing fraud.
The financial regulator says it has evidence that some below market value (BMV) or distressed property sales may involve fraud, where the buyer (a company or an individual), asks the selling homeowner to state that the property has been sold for its full open market value, rather than the agreed purchase price.
The FSA says this is usually done so the property buyer can borrow the full amount they have agreed to pay the owner for the property, which would not happen in the current market as lenders require at least a 5% deposit.
These types of below market value sales also allow the buyer to borrow at rates normally reserved for loans with a lower LTV, because the lender believes the buyer has a deposit for the property.
For example, if the buyer is paying £120,000 for a property they are unlikely to be able to borrow the full amount, as there are currently no 100% LTV mortgages left in the market, apart from a handful of guarantor mortgages.
But by telling the mortgage lender they are buying the property for £150,000 but only need to borrow £120,000 – 80% LTV – the buyer will be able to access a mortgage deal that will cover the entire asking price and at better rates than at a higher LTV.
The FSA says: “Misleading a mortgage lender in this way is fraud and both the buyer and seller could face prosecution.”
In particular for those selling their property, the FSA says that if they are in financial difficulty and getting assistance from the state paying bills they could risk losing their benefits payments as it may be assumed they have additional money as a result of the sale of their property.
The FSA has also naively warned property vendors against dealing with unauthorised sale-and-rent-back providers and firms providing lease option solutions.
Just shows how little the FSA know, Lease Options are a great way for investors to control property without actually owning it – Get the Lease Options Made Simple Handbook here
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