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It's official. Many buy-to-let landlords were duped by so called professionals such as surveyors, solicitors who were all signing off speculative residential developments often in City centres knowing that buy-to-let property was over valued whilst happily taking their fees. Landlords were misled by developers and their surveyors that they were receiving a discount when in fact they were over paying for property even with the so called generous 25-50% discounts.
Property Hawk highlighted this potential buy-to-let fraud way back in August 2006.
The Times has recently highlighted an investigation by the serious fraud office into this practice of buy-to-let fraud
The Serious Fraud Office (SFO) are investigating several schemes that have obtained millions of pounds in funds from banks.
The SFO said last week it was investigating two alleged buy-to-let frauds, involving properties in Leeds, Cardiff, Nottingham, Derby, Liverpool, Hull, Newcastle upon Tyne, Glasgow and London. Police in Greater Manchester, the West Midlands, and West Yorkshire are also involved in the inquiries.
At the centre of one of the biggest police investigations is Morris Properties, which specialised in student new-build flats and refurbished homes in Leeds and the northeast. It sold 1,000 properties before going bust last summer.
The firm was established by Simon Morris, a local developer who built up a £69m fortune by selling buy-to-let properties.
Morris’s firm lured investors with promises of substantial “discounts” on flats that were allegedly overpriced, and guaranteed rental income, which in many cases failed to materialise. Investors, drawn in by the mirage of ever-increasing house prices, were easy prey.
Have you fallen victim to buy-to-let fraud? If so post your experiences and thoughts here and help other landlords get justice.
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20 comments:
How can you detect whether you have been the victim of potential fraud or not? I have exchanged on a flat 18 months ago and am due to complete in the coming summer (although the development doesn't look as though its going to be ready by then having driven past the other day). The property was bought at a 'discount' but I have yet to see an original valuation as I bought the property through an introducer/broker. Because of this the property has not been valued by an independent mortgage provider. Do I wait until completion to act or should I be looking to do something about this now? How do I establish whether the property was deliberately 'over-valued?' I will not be able to meet any shortfall on completion (if there is one) and risk being pursued by the developer. There must be 000's of people in the same situation?!
A valuation is a personal document, it is not like an MOT , it does not run with a property, you must have your own valuation done for your own purchase, at the time of the purchase, it wont last for 18 months in this market and if the valuer gets this wrong with your money you can sue him- simple procedure so why do so many folk rely on third party valuations - they are simply not valid.
My advice as a chartered surveyor , pull out of the deal , it wont be worth what you have agreed to pay 18 months ago
You talk about it being "over valued" , but you have not had your own valuation done?
a valuation for you will cost about £200 cheap to save £100,000 if you have made the wrong choice
Thank you for your comments. I think thats its pretty obvious that it won't be worth anything like what I have paid. However, I have already put down 10% of purchase price. I cannot just pull out of the deal as we have exchanged contracts (leaving me liable for the remainder of the balance). I cannot establish whether it was ever over-valued as my valuation (if conducted now) is going to differ significantly from theirs because of market conditions at the time (and/or whether it was ever valued correctly). This is why I want to know how you can establish whether an off plan property is deliberately over-valued as in the Morris case? How do you know whether you were ripped off or just unlucky? Was the price deliberately over-stated (i.e did the developer/introducer/valuer collude in the valuation/sale to generate a higher purchase price). Clearly the parties taking Morris to court believe this was the case. The benefit of hindsight is a wonderful thing and with retrispect I should have had it valued independently at the time of the sale (agreed). I think there is going to be a lot more mileage in this story as this affects thousands of Britons who have bought property off plan.
The problem with the whole buy-to-let fraud is that much is based around the valuation of property.
How accurate is the valuation?
For a start, landlords need to be cautious about placing too much emphasis on mortgage valuations. The guidance from the Royal Institute for Chartered Surveyors on how a surveyor should value residential property is contained in Appendix 5.1 of the Royal Institute for Chartered Surveyors Appraisal and Valuation Standards (Red Book). The basis for the valuation of a residential investment property is normally its’ market value. Market value is defined in the Chartered Surveyors hand book as:
‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’
The difficulty comes where there is little comparative evidence in an area as there were in many city centres or areas where no new development of the type proposed by buy-to-let focused developers. Then valuation is more of an art than a science. In boom times some surveyors were guilty of not being resolute enough not to value developments at what their client - the developers suggested. When developments sold and prices continued to rise their guilt was temporary assuaged. However, these valuations have now come back to haunt these surveyors because in many ways without them the buy-to-let bubble would not have gathered pace in the way it did.
When is an off plan property deemed to be bought at a 'geniune discount', and when is it deemed fraudulent/deliberately over-valued (as in the Morris case)? I just want to know whether I was ripped off or not.
Another firm being investigated is Challenor Property Developments based in York. They duped me out of £23,500 in 2007 before going bust earlier this year.
Buy-to-let fraud.
The problem any landlord has in establishing buy-to-let fraud is that they need to prove that it was the intention of a surveyor to provide a inaccurate valuation with an intent to defraud the landlord and investor.
The starting point for any landlord and property investor who suspects they may have been victim of a buy-to-let fraud should be to establish that the surveyor acted unprofessionally in terms of the valuation of a buy-to-let property guidance provided by the RICS. A landlord should do this by making a written representation to the RICS alleging that the surveyor did not carry out the valuation according to guidance set out in the professions Red Book setting out Appraisal and Valuation Standards. An investigation by the RICS would then put the onus on the surveyor involved to produce the evidence that they followed the correct professional procedures in coming to their valuation of the buy-to-let property. If it can be proved that they did not act professionally then there may be grounds for taking legal action to try and prove an intent of the surveyor and other parties to knowingly defraud investors. This is a big step but establishing that valuers acted unprofessionally is the starting point in my view for proving buy-to-let mortgage fraud.
I would like to obtain some sound advise regarding the current situation, which could be classified as a "Buy-to-let" fraud:
I started the process of an investing in a Manchester based new build apartment, which I found via a sourching company (name can be provided) which has since gone bust and set up as a new company.
A finders fee was charged and paid and an GBP 1,000 reservation fee.
When the time came to paid the balance of the developers deposit, I asked for a RICS valuation and stated that I wanted to see the developient before paying the balance of the deposit. I was told that I could not visit the site or obtain the RICS valuation until the full deposit was paid.
Issues which arose were: Inaccurate completion date by the developer, poor workmanship, damaged bathroom items etc.
I eventually arranged a RICS valuation which confirmed that the value of the apartment was very much below the asking price.
Curent situation: The developer has my GBP 10,000 deposit and refuses to return of ransfere to a different development, the Sourcing company closed and set up as a new company and my Solicitor has not replied to emails, answered calls or replied to letters.
Can anyone advise what I can do to recoup my money?? Where can I go for some solid/reliable legal advise??
Appreciated.
FNK
Whilst working as an Estate Agent, I asked a Surveyor why, when he was more qualified than me, did he keep coming to us asking how much we had sold the property for that he was valuing, his answer was that ‘if a buyer was willing to pay that amount then he did not want to cause them any problems by down-valuing it’
Hi
I believe I was duped into buying a buy to let investment in Swindon, I was told I would receive a discounted property and told I would receive good rental returns however this never happened. I had the property valued and was advised I paid around 20k more than the same house in the same developments, and this was after I received my so called 10% discount.
My problem is I dont know where to go to challenge this, I have a big file with all the paperwork but have no idea where to start?
Investors in East Yorkshire are among more than 100 nationwide caught up in a buy-to-let scheme being investigated by police.
A number of people in the region are among 130 in a group legal action which is being prepared against a Leeds-based business, Morris Properties and several conveyancing solicitors.
The firm specialised in student new build flats and refurbished homes in Leeds and the north east. It sold more than 1,000 properties before going bust last summer.
According to The Sunday Times, detectives from the Serious Fraud Office (SFO) are investigating alleged scams involving properties in cities across the north of England, including Hull.
The report suggests the deals could have cost investors and banks millions of pounds.
Solicitor Max Gold, whose firm is acting on behalf of clients against a buy-to-let property company, says arrests have been made in connection with the case
Solicitor Max Gold, whose firm is acting on behalf of clients against a buy-to-let property company, says arrests have been made in connection with the case
Investors claim the properties were overpriced when they bought them and that pledges of rental income did not materialise.
Max Gold, a Hull-based solicitor whose firm is acting on behalf of clients across the country, said: "They claim that they bought investment properties which included covering solicitors fees and mortgage arrangement for them from various companies forming parts of the Morris group.
"These properties are said to have all been well overvalued when they were being bought for investment and the potential incomes were not being achieved."
A Hull builder, Richard Lee, is reported to be the single biggest investor in the Morris scheme and says he is now £6m in debt.
A spokesman for the SFO said they were looking into a case but could not confirm exact details.
Simon Morris, the man who ran Morris Properties, reportedly denies any wrongdoing and is said to be planning legal action against the police. He says people simply invested at the wrong time and with poor judgement.
West Yorkshire Police have confirmed they are investigating and arrests have been made.
Are you one of those taking legal action? Post your views
24/12/2008Cheating valuation surveyors to be charged
Four surveyors in Rotterdam who helped cheat house buyers of their money by providing false property assessments will be prosecuted.
ROTTERDAM – Four property valuation surveyors from the Rotterdam region are to be prosecuted for falsifying property assessments. The swindle has meant that hundreds of people have paid too much for a house.
On Tuesday, the television programme NOVA showed how swindlers cheated hundreds of people. First, they invest in houses, rent them out for a year and then sell them for a profit based on false property assessments provided by valuation surveyors.
The unsuspecting purchasers only discovered later that they had paid far more for the properties than they were worth.
By bringing a case against the four, justice officials want to demonstrate that not only criminals, but also those who help them will also be prosecuted.
from the derby evening telegraph 13.01.09
WHEN Geoff Morris bought seven buy-to-let properties in April 2005, he believed he'd found an unbeatable deal from a reliable company.
He was buying from Leeds-based company Morris Properties, owned by Simon Morris, a former director of Leeds United FC.
The company was purchasing and selling buy-to-let homes all over England, including several in Derby.
Encouraged by promises of easy lettings and smart pictures of the homes presented in glossy brochures, Geoff Morris and his Derby-born wife, Jane, agreed to buy homes in Leeds.
Geoff was so impressed that he quit his job as a sales manager and agreed to become an agent for Morris Properties.
Click here!
He even suggested that his two sons buy properties from the same firm.
But now the 62-year-old entrepreneur is considering legal action against Morris Properties after the homes he bought for a total of about £2m were repossessed.
Geoff and hundreds of other investors say they accepted valuations on properties but found later that the houses were worth up to 50% less.
Brochures for the firm say that a high demand for tenants was "guaranteed".
And investors say they bought properties on the understanding that Morris Properties would make improvements to the houses
But Geoff Morris and his solicitor Hammad Ahmad, who is representing 133 other aggrieved investors, say that promised work was, in some instances, not carried out and, in most cases, tenants never materialised.
This meant that rental income sometimes never appeared or, if it did, it was not enough to meet mortgage payments because the properties were not of a high-enough standard to provide the required rental income.
Geoff Morris admitted that he was "somewhat naive" to have accepted valuations on properties without an independent opinion.
But he said: "The big mistake I, and all the other investors made, was to believe the developer's marketing materials and to use the solicitors, brokers and valuers I was advised to – thinking everything would be fine.
"As it turned out we could not have been more wrong. I feel totally betrayed by the company. My pension fund has been wiped out. If I'm unsuccessful in starting up a new company, it will stay that way."
In a national newspaper Simon Morris has denied claims made against his company, saying clients had invested in the market at the wrong time and were victims of poor judgment. He has also denied properties were sold at inflated prices and said his business benefited from the lack of competition and the greed of investors.
"We were beating them off with a stick," he said.
The Evening Telegraph attempted to contact Simon Morris but he was unavailable.
An expert in the buy-to-let market said it was not unusual at the height of the housing boom for investors to accept valuations put on properties by agencies offering them for sale, because there was always the prospect of high rental income to meet mortgage payments.
John Socha, vice-president of the National Landlords Association, said: "Many people don't remember the recessions or don't have enough knowledge of the economy to realise how fragile the housing market can be. It goes in cycles."
Geoff Morris says he is helping police at the Serious Fraud Office with its investigations.
Geoff, of St Neots, Cambridgeshire, who met Jane 24 years ago when he worked as a sales manager for a Belper firm, said: "After completion, the rentals, if any, that came in were nowhere near the levels we had been promised.
"We then tried to get rid of the properties to cut our losses, only to find that the valuations were, in some cases, more than 200% of their market value.
"We sold every asset we had in order to try to keep up payments on all of these properties but, eventually, the mortgage debt, with no rental income, overcame us and we had to just hand the keys back."
In its glossy brochure, Morris Properties claimed it would "take all the worry out of property investment" – arranging valuations by financial experts and guaranteeing a high demand for tenancy.
Mr Ahmad is representing investors who bought a total of between 400 and 500 homes from Morris Properties.
The Serious Fraud Office is understood to be investigating the Leeds-based company, dissolved last summer.
Geoff Morris said that he and a group of investors bought homes in Leeds and Derby.
The Derby properties were 28 Victorian-era student homes, all in Uttoxeter New Road, most of which have now been repossessed by mortgage lenders.
Morris Properties called the homes the Premier Collection and valued them between £274,999 and £324,999.
A brochure for the portfolio suggests that finding tenants would be easy.
It says: "Historically these properties have had few (if any void periods) and there is a constant demand for tenants – rest assured, a high demand is guaranteed.
"Void periods are virtually unknown – guaranteeing premium rental rates and excellent year-on-year returns."
As leader of the investors, who are now planning legal action, Geoff Morris visited the Uttoxeter New Road homes after claims that promised improvement work had not been carried out.
He considered the properties to be in an unsatisfactory condition. He said: "They appeared run-down, dilapidated, and had not been renovated."
One investor who bought a Uttoxeter New Road home said that he had lost more than £100,000 through a single deal.
The buyer, of London, who did not want to be named, said that he spent £279,999 to purchase the property.
He said: "In reality it was worth £210,000 and the rent was much less than expected.
"It cost £35,000 to begin with to bring it up to the standard demanded by law for rented homes because the roof was leaking, the kitchen wasn't fitted and there were no fire retardant doors."
The 47-year-old buyer, who owns several other buy-to-let properties, claimed he had tried to pull out of the deal.
He said: "I got worried because I knew not much work had been done.
"I contacted the firm but they told me it would cost between £20,000 and £30,000 to pull out.
"I'd never have got my money back."
Mr Ahmad said: "All of our clients, of which there are 133, have the common factor that they bought from the same property developer, Morris Properties. We have a number of properties in Uttoxeter New Road and clients in Derby and Derbyshire."
Mr Ahmad said it was true that, in many cases, the investors' problems could have been avoided with private valuations. But he said: "Large numbers of buy-to-let purchases are made without seeing properties. But we would say that the properties were over-valued by up to 100%.
"We would be looking to go to court in three to six months."
A spokesman for the Serious Fraud Office said police had been investigating for more than a year.
He said: "An investigation continues into companies through which a number of people have purchased properties within the buy to let market in the Leeds area.
"This is a joint investigation by the Serious Fraud Office and West Yorkshire Police.
"We are seeing what the facts are and deciding what action, if any, to take."
I came across this on www.citywire.co.uk
A multi-million pound buy-to-let property scam has been uncovered by the Serious Fraud Office (SFO), with five directors of a defunct property investment business pleading guilty.
The £80 million fraud – which the SFO described as a type of Ponzi scheme – stung at least 1,750 investors who paid £25,000 each in return for the promise of a house in the North East of England.
The investment company, PPP, which has since been wound up, promised a house in an up-and-coming area. They said it would be refurbished to a tenantable standard, to be let to vetted tenants and maintained on behalf of the landlord.
The SFO said that crucially for many investors, PPP promised rent would be guaranteed by means of an insurance policy which would cover any periods when the property was not tenanted.
The prosecution alleged that the defendants misled investors in almost every respect and five directors – John Potts, Peter Gosling, Natalie Laverick, Peter Graham and Eric Armstrong – all pleaded guilty to fraud.
The majority of the properties were un-let, with half still awaiting commencement of renovation works. Also, the crucial ‘rental guarantee scheme’, which investors were told was underwritten by a ‘blue chip insurance company’ was found to be a sham, the SFO said.
The SFO described the use of company funds for personal gain by some of the defendants as ‘simply staggering’.
The five defendants are to be sentenced in mid to late March 2009.
http://www.ft.com/cms/s/0/c99de3c6-e425-11dd-8274-0000779fd2ac.html
The FT reported at the weekend that:
Five property company directors of a company Practical Property Portfolios PPP funded racehorses, fast cars and a £5,000-per-head office Christmas party through a buy-to-let fraud.
The group pleaded guilty to a scam that prosecutors said took £65m ($96m) from more than 1,500 investors who were falsely told that they were buying houses in up-and-coming areas mainly in the north-east of England.
The case – which pre-dates the most intense period of buy-to-let mania – highlights the fraud possibilities inherent in the market’s blend of big money and absentee owners.
Property lenders expect to see more fraud cases emerge as the slide in home prices forces professional investors using other people’s money at the peak of the market to come clean.
“These sorts of fiddles can often be hidden in a rising market as prices are going up across all property, good and bad,” said Ray Boulger, of John Charcol, the mortgage provider.
“But a falling market forces them out of the woodwork as people cut losses.”
John Potts, Peter Gosling, Natalie Laverick, Peter Graham and Eric Armstrong – all former directors of Practical Property Portfolios – pleaded guilty at Newcastle Crown Court this month to charges brought by the Serious Fraud Office over their stewardship of three companies that took about £80m between 2001 and 2003 from selling rights to 4,000 properties to at least 1,750 investors. Investors were told that the houses would be managed properly and let to tenants. But prosecutors said many were in undesirable areas, of a lower value and quality than claimed, or were left unrenovated, untenanted and uninsured.
The scheme – in which early investors were paid their promised “rental income” using money from later entrants – was at heart a Ponsi-style pyramid fraud.
The SFO said it allowed guilty directors to enjoy lavish lifestyles involving “simply staggering” spending.
The SFO said the company’s spending on itself – including huge salaries and an estimated £500,000 on a Christmas event for its 100 or so staff – showed the “contempt” that the defendants had for their investors. Competition prizes offered at the party included a villa in Spain worth £100,000, a boat and £10,000 in cash. The five directors are to be sentenced at a later date.
The housing market boom saw scores of so-called property investment clubs competing for investors’ cash, with returns often predicated on rising house prices.
Although not inherently fraudulent, many experts see methods used by certain clubs as untenable in anything other than a strongly rising market.
The new National Fraud Strategic Authority is working with lenders to create new safeguards.
This is a classic example of where inexperienced landlords and property investors were exploited by unscrupulous individuals.
MAX GOLD SOUNDS LIKE HE IS TAKING ALL THESE POOR PEOLPE FOR A RIDE, HAS HE GOT ANYWHERE? DO YOU THINK HE IS GOING TO GET ANY MONEY? THINK AGAIN THERE IS NO MONEY LEFT THE COMPANY IS IN ADMINISTRATION. mAX GOLD IS TAKING YOU ALL FOR A RIDE TAKING YOUR FEES AND SENDING YOU A LETTER ONCE IN A WHILE!!!! HE IS ALMOST AS BAD AS THAT CRIMINAL GEOFF MORRIS WHO WAS UNABLE TO MANAGE HIS OWN PROPRTIES AND PERSWADED EVERYONE HE IS PART OF A MASSIVE FRAUD CONSPIRACY. HE HAS BEEN SHARING INFORMATION WITH Inspector Steve Taylor of West yorkshire Police who breaks the Data protection act on a regular basis with Nicola Rees and other members of the public to keep his most interesting case alive in a media circus.
I heard that those bent coppers have beern leaking information to the Times which was untrue, Morris didnt get arrested for anything to do with the BTL fraud it was a land deal with some dodgy guys. The Economic crime unit at wakfield seem to be keeping this alive to add PR to their ongoing media curcus. I think they should stop waisting public funds and find some crooks to arrest. I am sure their is a word for what the police are doing "abuse of Process" they should be locked away. Has anubody else had problems with any of the following officers from West Yorkshire Police:
DI Taylor
Skidmore
Hargreaves
Raybum
I think their needs to be an investigation into their conduct, I haer their is a case comming at them and some of the press, has anybody else heard this?
Did anybody see that rediculous Inside out this evening? What a load of old rope!! This woman (debbie boffa) is related to Geoff Morris the guy who was on the last show and panorama. These same people pushed the same complaints through the DTI, they saw through them, The police obviusly arenot so clever, especially that Steve Taylor from West yorkshire Police, he seems to abuse his authority by leaking sensetive information on ongoing investigations to the press and third parties. This whole story is a joke, If anybody feels sorry for these fools now (arm chair investors) they need their heads examining.
The property market is full of people just trying to make a quick buck. SCAMMERS really. What happens if you get scammed, you complain. In reality, you shouldnt play if you cant afford to lose. It is a quick way to make money, but for every winner there is a loser. It is about profit, not how the game is played.
Even level headed home owners play the gazumping game, lie about deposits, property values etc. So no point crying about it when you get out played.
The Surveyor has a third party Duty of Care to the potential purchaser. I was duped by the property clubs . I am making a claim against my Surveyors via a company called Financial Claims Centre in Manchester. This company have helped me put a claims together great service and very helpful
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