Judge Hits Out at Buy to Let Lender’s Poor Underwriting

Judge Hits Out at Buy to Let Lender’s Poor Underwriting

16:59 PM, 9th January 2012, About 13 years ago

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A buy to let lender was slammed for a landlord mortgage of £166,500 without carrying out proper income checks in a negligence case at the High Court.

GMAC-RFC – now trading as Paratus-AMC – agreed the 90% loan-to-value advance on a £185,000 property valuation from Countrywide in 2004.

In 2007, the landlord defaulted on the interest-only repayments.

GMAC-RFC repossessed the home, which was subsequently sold in September 2008 for £123,500, leaving the lender with net proceeds of £118,103.

The mortgage firm claimed the surveyor was negligent and the property price should have been £154,000 in 2004, which would have led to them agreeing a much lower loan that would have reduced the loss.

Countrywide argued the lender showed contributory negligence by failing to verify the borrower’s income and other details on the mortgage application – and if the checks had been carried out, the loan would probably have been declined.

Judge Keyser ruled that Countrywide had not been negligent but a correct valuation would probably have been £175,000, although agreed the Countrywide figure was within an acceptable range.

The judge also told GMAC-RFC that if Countrywide had been found liable, he would also have found the lender contributory negligent for not carrying out proper underwriting checks and would have docked any damages by 60%.

“Paratus AMC do not accept the judge’s findings on contributory negligence,” said a spokesman. “Paratus AMC welcomes the judge’s comments that lending on non-conforming criteria does not constitute contributory negligence per se.”

Valuers, including Countrywide, have faced a flood of negligence claims in court as lenders have tried to recover losses as house prices have fallen in the past three years.

A Countrywide spokesman said: “We will continue to defend our position when we believe we have fulfilled our responsibilities, but if an error is made then we seek to settle with claimants as soon as possible.”

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