Property investors warned against NMD scammers

Property investors warned against NMD scammers

15:31 PM, 3rd February 2011, About 14 years ago 1

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Fraud investigators are warning property club investors against scammers that are offering bogus below-market-value deals with NMD (No Money Down) financing.

Pie in the sky promises of instant cash backs and high yields in return for little or no deposit are often too good to be true because they are fraud, says financial crime monitoring company Quest.

Quest has revealed they are monitoring more than 1,000 property clubs, web sites and organisations suspected of involvement in fraud by mortgage lenders.

Many of these investment packages are marketed in the same way:

  • The club promotes a property as a below market value (BMV) package
  • The investor is invited to buy the property via the club’s own solicitor
  • The property is remortgaged at a higher price than the original selling price with the cash difference going to the investor
  • The lender is not told about the original sale price

In reality, the valuation of the property is the original sale price. The BMV figures are often inflated to make the package attractive to investors and the property club organisers are helping the investor buy the property with a fraudulent mortgage application.

The NMD business model hit a wall when the property club lender of choice Mortgage Express stopped accepting same-day remortgages when the banking crisis hit.

Since then, investors have to hold a property for at least six months before a bank or building society will consider refinancing the investment.

Lenders set to fund specialist police mortgage fraud squad

Quest cites a recent case involving a property in the North West that appeared to be legitimately on the market at an advertised price of £150,000. The property was  offered for a BMV price of £112,500, but the lender was given a suggested valuation of £150,000 with an application for a

75% loan-to-value (LTV) mortgage of £112,500.

The value of similar properties was no more than £120,000, while a 75% mortgage on a purchase price of £112,500  supported borrowing of £84,375.

If the loan had proceeded, the lender would have advanced £28,000 more than should have been lent on the property.

“Property clubs are a growing concern for mortgage lenders, who are being duped into lending on properties with an unrealistic, over-inflated market value. Quest is currently monitoring over 1,000 properties, sites and organisations on behalf of lenders into this very issue, demonstrating the scale of what is being faced,” said James Sherwood-Rogers of Quest.

The full extent of mortgage fraud is shown by the Lloyds TSB announcement that 900 mortgage brokers have faced suspensions of three months or more in the past three years due to suspected false loan applications.

Most false mortgage applications involve a broker or other professional over inflating the prospective borrower’s income or altering the property valuation to gain a higher loan than would otherwise be granted.

The Council of Mortgage Lenders is also considering financing a specialist police mortgage fraud unit in complex cases across several police areas.

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Ellis Daniels

9:52 AM, 14th May 2011, About 13 years ago

This is a real problem and I have to say is still going on, unfortunately. It also usually involves a 'sales contract' with the vendor and a charge placed on the property by a third party, who charge a commission for their troubles.

The charge is lifted when the vendor releases the extra funds to the investor, with the solicitor having a fake deposit in his account for the purpose of drawing down of the funds from the lender. Its shocking.


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