Warning over increase in mortgage fraud targeted at landlords and property investors

There has been a sharp rise in the number of unscrupulous property agents and discount websites who lull property investors and landlords into a false sense of security, claiming they can buy a property without putting any money down and involving them in mortgage fraud, it has been revealed.

According to property investment specialists Invest Connect, real estate investors and landlords are being tempted by 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 firm says that 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, and sometimes even more, to end up with a no cost purchase.

Charles Brittain, business development and marketing director of Invest Connect, said that this is clearly an unlawful transaction as lenders would not grant a loan on these premises, if they knew.

‘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,’ he explained.

‘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,’ he added.

He pointed out that it is vital that investors and landlords ask the right questions at the outset. He advises asking the ‘no money down’ firm to put their offer in writing and then getting it checked by the Council of Mortgage Lenders 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,’ he said.

He also pointed out that the penalties for mortgage fraud can be serious and can include a heavy fine and/or up to 10 years imprisonment. Also the property concerned may be confiscated under the Proceeds of Crime Act. In each case the individual will have 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?

Brittain also pointed out that 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.