Is this conspiracy to commit fraud?

by Readers Question

10:04 AM, 22nd June 2017
About A year ago

Is this conspiracy to commit fraud?

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Is this conspiracy to commit fraud?

I used a sourcing company to source me a newbuild flat. I was given assurances by the sourcing company that the property would be “mortgagable” before I exchanged contracts. The properties have now been built, however, we have been unable to obtain finance. We have used the in-house mortgage broker, as recommended by the sourcing company, however several lenders/surveyors have refused to lend on the properties.

The developer has now proposed that they issue notice to complete within two weeks, and if we are unable to complete within two weeks, we are given a further six months to obtain finance. This is completely unacceptable – we only exchanged because we were told by the sourcing company that we would be able to mortgage these properties (we have email proof of this). We cannot afford to complete with cash.

We are now in a difficult situation. We have obviously put down 10% as an exchange deposit, and also paid a fairly large fee to the sourcing company. The sourcing company initially suggested that the properties would be remarketed as cash only, and we would be refunded both our exchange deposits, as well as the sourcing fees, but this was never formalised.

The sourcer and broker have acted poorly throughout, repeated broken promises and poor communication. They claim to be acting in our best interests, but at the moment seem only to be be interested in protecting their own fees.

I also received the below email from someone at the sourcing company-

“Please note that the developer contributions being offered can affect the lending (the value of the contributions would be seen as cash incentives and as such would be taken off the purchase price) so we would have to ensure they weren’t made known to the valuer. I’ve made (broker at sourcing company) aware of this, so that he is up to speed and we would ensure that the developer didn’t disclose this on his paperwork too.”

There were a number of incentives offered, such as free legals, stamp duty paid, free property management for six months. This in my mind amounts to conspiracy to commit fraud, which is a criminal office, and can carry very heavy fines.

I made a complaint about the broker because he was so bad at communicating with me, he never replied to emails, never answered the phone, and did not seem to be taking this seriously at all. We have been told several times that the next mortgage lender was very likely to lend, only for them to decline. Four separate surveryors have visited so far, all have declined to lend. Since then, the broker has not communicated with me at all for a period of one month.

I am really at a loss as to what to do now.

Christian



Comments

Neil Patterson

10:16 AM, 22nd June 2017
About A year ago

Dear Christian,

I am sorry to hear of the situation you find yourself talked into. It is like going back to the bad old pre credit crisis wild west days.

Firstly no one can ever guarantee you can get a mortgage before you have an actual offer letter as there are hundreds of criteria to consider including credit scoring and MMR rules on affordability. Therefore never exchange until you know you have the money (I know that is no help now).

The sourcer/agent should belong to a redress scheme such as the TPO which you can complain to, but I am now doubting they are.

Certainly no FCA regulated mortgage broker should ever tell you not to disclose information to a lender and if they have this is your best bet to complain to the FCA.

If the broker has not directly broken FCA rules then you are probably going to need legal advice and and see if you can cancel the exchange.

If you are not already engaging a solicitor you could try our partners at Cotswold Barristers and there is a contact form on this page under our legal tab >> https://www.property118.com/private-prosecutions/

christian kemp

10:29 AM, 22nd June 2017
About A year ago

Hi Neil

Thanks for the reply.

The company are very big, and have been in the game a long time. You will definitely have heard of them!

They do belong to a redress scheme, and it is the TPO.

At one point the company did seem to admit they were at fault, and said they were trying to find a solution because they did not want "egg on their face". By even discussing the option of remarketing the properties as cash only, and of refunding our deposits and fees once they were resold, they have implicitly accepted that there was some wrong-doing, and they should not have been marketed as "mortgageable" in the first instance.

I have sent a last resort email to the managing director in the hope that he will want to help. The latest is that the developer is going to serve notice to complete, and then give us six further months to obtain finance, but I can see us facing exactly the same issues as we have done so far. Note that I have not been receiving ANY updates from the broker/sourcer, as since I made a formal complaint about them, they have stopped dealing with me. I am getting all this information from my friend, who unfortunately is in the same position as me.

I have reached out to Mark at Cotswold Barristers, but got his out of office, hopefully he will be back in touch with me soon.

Puzzler

8:32 AM, 23rd June 2017
About A year ago

How is it your conveyancing solicitor allowed you to exchange without proof of funds?

christian kemp

8:46 AM, 23rd June 2017
About A year ago

We had an agreement in principle when we exchanged. By the time it was build complete, the AIP had expired anyway. That particular lender refused to lend in the end anyway.

Neil Patterson

9:41 AM, 23rd June 2017
About A year ago

Even an offer letter is not a total guarantee as the lender reserves the right to pull out if circumstances change and you have to remember they are only valid for either 3 or 6 months and then you have to apply for an extension or in some cases reapply again and often the product has gone.

John Constant

9:52 AM, 23rd June 2017
About A year ago

Christian, I would be very interested to hear why your lender(s) have refused to lend.

Have you spoken to any other reputable brokers who might be able to assist? We have worked closely with Property118 over the years on cases that have had their difficulties. We can't guarantee success, but we would be happy to have a look at the circumstances surrounding the case to see if a resolution of the situation can be found.

Dylan Morris

10:25 AM, 23rd June 2017
About A year ago

Why exactly are these properties not mortgageable ? What's wrong with them ?

Neil Patterson

10:31 AM, 23rd June 2017
About A year ago

I am guessing the lender will not accept the incentives as a borrowers deposit?

christian kemp

10:40 AM, 23rd June 2017
About A year ago

A number of lenders have refused to lend based on surveyors comments. They have been mainly around "location factors", "saleability", "lack of comparables".

The lenders that have rejected so far are - BM Solutions, Kent Reliance and Shawbrook. The pool of lenders is limited anyway because they are newbuilds and there is a commercial unit (supermarket) at the bottom. Currently, there are valuations going through with Dudley BS and Natwest Commercial. However, as a lot of the lenders use the same surveyors, I am sure the outcome will be similar!

I have been using the inhouse broker, who is absolutely useless. However, a friend has been using a different broker, who I know is good, as I have used him before, and still having the same issues.

Neil - No, nothing to do with incentives being used as deposit. I have the deposit, I also have the full cash amount, but obviously the deal has a completely different risk profile and return when buying for cash. If lending can be found, I think they would still be a good investment. The main issue is that if this had been marketed to me as a cash only deal, I would not have been interested.

Dylan Morris

10:43 AM, 23rd June 2017
About A year ago

Reply to the comment left by "Neil Patterson" at "23/06/2017 - 10:31":

Thanks Neil. Simple solution then is to ask the developer to remove all the incentives and pay your own legal fees, stamp duty and forget about the free 6 months property management. Of course the purchase price would need to be reduced by an equivalent amount that this was costing the developer. The developer should be in no worse position.
Only possible problem is that you will need the cash upfront to pay the first two items. You will be compensated by the reduction in purchase price. If cashflow is a problem see if your solicitor will take a credit card to pay the legal fees. This should not affect the lender, you do not have to disclose this and the lender will never ask. Stamp duty could be an issue though if you don't have the funds.

(sorry was unaware of the previous post before this one which crossed with mine)

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