Experience tells me that it pays to be alert in the world of property.
As a landlord and a property investor I'm always alert to potential scams.
There's no such thing as a gift horse in this business.
It pays to keep a weather eye out for the latest 'tricks' in the property business.
That's why I'm grateful to the guys at Invest Connect for flagging up some potential issues.
There's a sharp rise in the number of unscrupulous property agents and discount websites who trick property investors and landlords by claiming they can buy a property without putting any money down and involving them in mortgage fraud, according to Invest Connect.
Investors and landlords are often offered property deals with the offer of a ‘no money down’ deal.
This is sometimes achieved by an inflated value and a maximum loan-to-value mortgage taken out, for the full inflated valuation.
The mortgage applicant declares they have paid more for a property than they actually did, usually stating the open market value as the purchase price.
The intent is to obtain a mortgage loan for the actual price paid (sometimes even more) to end up with a no cost purchase.
This is clearly an unlawful transaction as lenders would not grant a loan on these premises, if they knew.
Charles Brittain Business Development and Marketing Director of Invest Connect has commented:
“It is unfortunate that too many property sales organisations promote the benefits of property investment, without fully explaining unlawful methods of acquiring discount property with a mortgage.
"In any property transaction there must be total transparency, so that all parties know how the deal is being constructed. If you do not disclose the discounts by having the gross price put on the contract and having the property valued at the gross price, you are defrauding Land Registry and the Inland Revenue and laying yourself open to severe problems, should you ever be audited.
"It is vital that investors and landlords ask the right questions at the outset. For example, can the ‘no money down’ firm to put their offer in writing, so you can get it checked by the Council of Mortgage Lenders and/or the Law Society? If it is a legitimate scheme, the company offering it to you will have no problem furnishing you with the information.
"The penalties for mortgage fraud can be devastating and may include any or all of: a heavy fine; up to 10-years imprisonment; plus, property may be confiscated under the Proceeds of Crime Act. In each case the individual will bare a criminal record.”
The Fraud Act 2006 clearly defines the offence that will implicate any mortgage applicant(s), mortgage broker and legal adviser who failed to provide information, whether requested or not, that would influence a lending decision.
Invest Connect has put together some of the key questions to ask, which will help investors and landlords identify if it is a fraudulent mortgage transaction:
• Are you being asked to sign paper work with differing headline purchase figures?
• Has the value of the property significantly increased in a short period of time inexplicably?
• Is the amount of the mortgage for the full purchase price of the property?
• Is the deposit being paid by someone other than the purchaser?
• Have you been asked to enter a price on the title that is greater than you know was paid for the property?
Even if you rely on someone else, you are still responsible for ensuring due diligence has been appropriately conducted. If you suspect you are being asked to facilitate money laundering, you should consider making a disclosure to the Serious Organised Crime Agency.
Wise words from the team at Invest Connect