9:20 AM, 20th October 2011, About 12 years ago
Consumer champions are warning homeowners with financial problems about property speculators who offer a way to avoid repossession with lease option deals.
The Financial Services Authority (FSA) is drafting guidelines warning homeowners about some unscrupulous companies that fail to deliver their promises to stop repossessions or ease their financial problems.
Lease options are a controversial property investment tool favoured by speculators looking for below market value deals.
Typically, the companies target homeowners with financial problems by offering financial solutions that ‘stop repossession now’.
The firm then negotiates a price for the property that is up to 30% below market value and arranges a lease option contract.
The contract obliges the homeowner to sell the property at the agreed price on an agreed date – but the buyer can drop out of the deal, leaving the owner still facing repossession.
In the interim, the homeowner moves out and a tenant is moved in by the investor, who promises to keep, up the mortgage repayments. In many cases, the mortgage repayments are skipped leading to repossession as the investor pockets the rent money.
The investor faces no consequences because the seller still owns the property and has to deal with the lender.
A FSA spokesman said: “We are aware some homeowners may be considering ‘lease options’ or ‘exchange with delayed completion’ deals as a way to help them reduce the strain on their finances.
“These products may not always put the homeowner in a better place than if they were to sell their house under normal circumstances, and to that end we will shortly be publishing information on our consumer information website to help explain how they work and what the risks are.”
Most insist homeowners arrange the deals through a solicitor employed by the investor because they are aware that the contract terms are unfair.
Many firms involved in lease options promote their firms online as services to stop repossession or buying below market value homes.
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