In 2004, following widespread public outrage, at the manner in which many unscrupulous landlords were treating their tenants, who were all living in shared accommodation properties, the 2004 Housing Act was introduced. The objective of that Act was to introduce mandatory HMO (House of Multiple Occupancy) Certification, for all residential properties, with more than 4 rentable bedrooms, a Local Authority status of multiple tenancy, and where the tenants were from at least two separate households.
In the following activity, this was no mistake. This was a deliberate criminal conspiracy, not just to get the borrower to unintentionally to enter a contract to purchase an unlicensed HMO, but also, by getting them to accept an illegal vendor gifted deposit ( proven by the SRA, in 2010, of being dishonestly concealed from the lender, not by the borrower, but by their conveyancer, not once, but in at least 452 occasions, this was used in an attempt to put all the blame on the borrower as being guilty of mortgage fraud.
On top of that, the Mortgage Security Value (MSV), was, in many cases, proven from us seeing nearly 100 such MSV's, done on a deliberate breach of contract by the borrower, against the lender, as having been fraudulently estimated on a commercial basis, which the lender, after seeing this MSV report, knowingly used as if it was the REAL MSV.
When the lender, after many complaints from affected borrowers, eventually took successful legal action, in many cases, for professional negligence against both the valuer and the conveyancer involved, instead of writing off those fraudulent contracts, and including in their High Court claim, the cost returning those affected borrowers to the financial status they would have enjoyed had they not been deceived into entering a contract containing at least 1 false instrument, the lender accepted an arbitrary, out of court settlement, that they then used to reduce the alleged mortgage shortfall.
But the real issue here, was the fact that in most cases, as most properties had more than 4 bedrooms, and a local authority status of multiple tenancy (proved by at least 90 fraudulent GMAC commercial valuations, presented to the lenders as if they were the real msv), these properties were sold, either fully tenanted, or with a vendor rental guarantee payable for up to 6 months, each of these properties, due to the 2004 Housing Act, without mandatory HMO certification, were not only illegally tenanted, they were also criminally sold to an unsuspecting landlord.
From that point onwards, it would have been a criminal offence for a landlord, not only to manage such a property, but also to sell such an unlicensed HMO to another unsuspecting landlord.
So how was it possible, in 2005, for a well-known property developer, with a Top 500 Law Firm acting as their Corporate Lawyer, to launch the following Business Model?
The 2005 Business Model, based on selling hundreds of unlicensed HMO properties.
The main features of this 2005 business model, were based on the following: –
Every property's Mortgage Security Value (MSV) was to be estimated by an RICS-qualified surveyor.
Every property was sold with the benefit of a vendor gifted deposit.
Every property was sold, specifically for use as shared accommodation for student tenants.
Because of that, each property must have had a Local Authority status of multiple tenancy.
Every property was to have a landlord, selected by the seller, to install a full complement of tenants, prior to the sale, or a 6-month retail guarantee to be paid by the vendor.
As most properties had more than 4 rentable bedrooms, unless they had mandatory HMO Certification, they would have been classed as unlicensed HMO ‘s.
The Lenders were all selected by the vendor's in-house Broker.
Before we analyse each of the above sales features, consider this.
After the introduction of this 2004 Housing Act, all of these rogue landlords, at which the 2004 Act was aimed, would have found themselves between a rock and a hard place. They would either have to had pay to have their properties modified to meet the new HMO Certification standards, or to try and dispose of them, rapidly, in their unlicensed state.
If a large property developer came along and offered to buy these portfolios of unlicensed HMO s, unless that property developer bought them, in full knowledge of their unlicensed state, that would have been a criminal act by the seller. In any event, if the buyer had cash, that would have been an opportunity to snap up those properties, at a very good price.
Once purchased, unless the new owner made good, and got these properties up to HMO standards, it would have been a criminal act of the developer to sell these unlicensed HMO properties to unsuspecting other landlords/investors.
Also, a number of large (20 to 40 unit or more “Cluster flats”) were purchased by this developer, most of which had more than 4 bedrooms, and as most were tenanted at time of acquisition, that acquisition would have been ILLEGAL. In most cases, all these units were then sold on, illegally, as unlicensed HMO s.
Now let us analyse this Developer's seven sales feature in more depth: –
MSV estimate. In at least 90 cases that we have in our possession, the MSV was done in breach of contract against the Lender's specific instructions, which was to estimate the MSV, as if being sold with vacant possession, and with a Local Authority status of Owner Occupier. It was seen to have been done on a commercial basis, using anticipated rental income, and a Local Authority status of multiple tenancy. Furthermore, in the 90 or so MSV's in our possession, the valuer added something similar to “If the anticipated rental income should fall, this will seriously affect the valuation we have estimated. Also, if this property were to revert to “Owner Occupier” status that would also affect our valuation.”
This commercial valuation was then substituted for the REAL MSV, presented to the lender, as if it was as requested.
As the Lender would have seen that MSV, prior to issuing their mortgage contract, they would have been aware that they actually lending 85% of the COMMERCIAL, and NOT the real MORTGAGE valuation. I believe that was an act of deception by the Lender.
Furthermore, as the lender would have seen evidence from the conveyancing file, that showed the property to be sold, was an unlicensed HMO, that was also a Criminal act by the lender.
Vendor Gifted Deposit. In the SRA's three-year-long Disciplinarity Tribunal investigation into the most prolific of the 5 law firms selected by vendor, to act for the borrower, in 2010, that law firm was struck off, as they had been responsible for dishonestly concealing the Vendor gifted deposit from the lender, not once, but in 452 occasions.
This proven act of dishonesty by the buyer's conveyancer, must have resulted in the Lender having to write off that mortgage, and pay the borrower any appropriate damages as result of the criminal actions.
Why did the SRA, in 2010, not pass on this information to the Financial Authority (FCA), who would then have forced the above action?
Why did the SRA, in 2010, not pass on this information to the Serious Fraud Office team, who were, from 2007 – 2010, also investigating the actions of this developer?
Why had a High Court, in a recent claim by a Lender, for a mortgage shortfall arising from the sale of a KNOWN unlicensed HMO, found the innocent borrower, guilty of mortgage fraud?
Sold for use as shared tenancy accommodation. From most conveyancing files, evidence of the property's use as shared tenancy accommodation would have been seen. There can therefore be no blame of concealment placed against the borrower, as being responsible for concealing that fact from the lender.
Local Authority status of shared Multiple tenancy. Once again, from the 90 or so MSV's in our possession, the Lender was fully aware that their lending terms did not permit that particular status, but still proceeded to issue their mortgage contract.
Tenanted prior to sale. Once again, in many cases, the Tenancy Agreement for multiple student tenants was present in the Conveyancing file. Why did the lender permit that breach of their own lending rules?
Tenanted in situ. This was probably the most deceitful act by MPUK. Prior to every property being sold, to be entitled to all the sales benefits on offer, each purchaser had to sign an agreement with MPUK, prior to sale, to allow MPUK to appoint a landlord, to both manage, and tenant, the property, including collecting, and holding, the deposit. This was usually either First City Rentals, or Rent-Me (both owned and controlled by MPUK). In a number of cases, either of these companies were actually the legal vendor.
This meant that the landlord/vendor was fully aware of the fact that the property was being used as shared tenant accommodation, and, if the property had more than 4 bedrooms, due to the 2004 Housing Act, would have required mandatory full HMO Certification. This would have been an illegal act on behalf of the landlord, as well as a criminal act to sell it in that state to another unsuspecting owner.
As in many cases, no promised renovation had taken place, and any extra bedrooms added in the loft and basement areas in the loft and basement, if done at all, were of such poor quality, the tenants would complain to their landlord. However, the landlord would ignore those complaints, and so, in many cases, the tenants would leave, and demand their deposit back. One such new owner, unaware of the actual physical state of this property he had purchase unknowingly, without HMO Certification, had a solicitor's letter from one of the tenant's parents, demanding the return of the deposit, which of course, landlord had kept.
However, due to many “legal” tenants leavening in this manner, due to these legitimate complaints being ignored, they were replaced, in many occasions, by asylum seekers, who paid very little rent, also had no respect for the property, and in many cases caused lots of damage. That act was also in breach of the lender's condition.
Unlicensed HMO ‘s. As the 90 or so MSV reports in our possession, all show that all those properties, with more than 4 bedrooms, had a Local Authority status of multiple tenancy, and were therefore all sold illegally as unlicensed HMO ‘s.
Vendor Selection. Further to disproving that the borrowers were in any way involved with mortgage fraud, the lender was selected by the developer's in-house Broker, as being suitable for the mortgage.
Now, in mid-2006, a well-known investigation firm, were requested by a Top 500 law firm, to examine the behaviour of this particular developer.
Within 4 weeks, that independent organisation reported back to the law firm, and a number of borrowers, that” The investors had all become victims of a particularly vicious and clever fraud”.
The question that must have been asked, but never was: “How was such a fraud able to be perpetrated, with so many Professionals involved?”
Professionals Involved with the Vendor, in the initial sale.
The Property Developer, would have used the following Professionals:
A Corporate Lawyer, to monitor the Developer's Corporate Governance.
Should they have agreed to let the developer to purchase unlicensed HMO properties? (Only if advice was given in writing as to the risks).
Should they have agreed to let the Valuer substitute a commercial valuation to the lender, as if it were the REAL MSV? (Both valuer and solicitor should have understood the true nature of the transaction.)
Should they have agreed to let the developer then sell on unlicensed HMO properties?
Should they have agreed to let the developer pay the borrowers' deposits, in the form of a concealed Vendor Gifted Deposit? (Possible deception on the lender here.)
A Selling solicitor to implement the Developer's business plans as detailed above.
Should they have agreed to let the developer purchase unlicensed HMO properties? (Actually, anyone can purchase it – it is the use that the property is then put to that may be a breach of law).
Should they have agreed to let the Valuer substitute a commercial valuation to the lender, as if it were the REAL MSV? NO!
Should they have agreed to let the developer then sell on unlicensed HMO properties? NO!
Should they have agreed to let the developer pay the borrowers' deposits, in the form of a concealed Vendor Gifted Deposit? NO!
An RICS-accredited Surveyor.
Would the Vendor's Corporate Lawyer, and the Vendor's selling solicitor, permit a Commercial valuation to be presented to the Lenders, in place of the REAL MSV? (Likely deception on the Lender unless the Lender was party to the real nature of the proposal.)
Professionals Involved with the Lender, in the original sale.
A Corporate Lawyer, to monitor the Lender's Corporate Governance
Should they have agreed to let the lender lend against unlicensed HMO properties? No!
Should they have agreed to let the Valuer substitute a commercial valuation to the lender, as if it were the REAL MSV? No!
Should they have agreed to let the developer pay the borrowers' deposits, in the form of a concealed Vendor Gifted Deposit? No!
Professionals involved in any Mortgage Shortfall Claim.
A Lawyer acting for the Lender/Claimant, in any Mortgage shortfall Claim.
If that lawyer played a role in the original deceptions (of which we have several examples), there can be no legal reason for that Law firm to be legally allowed to participate in any mortgage shortfall debt chasing process. Surely it was the SRA's role to investigate.
A lawyer acting for the defendant, in any Mortgage shortfall Claim, must treat seriously, any complaint raised by the borrower. In many instances, all the above issues had been disregarded by those lawyers.
Any lawyer, taking successful legal action against a Professional (such as a fraudulent valuation, (following the SRA's successful claim of dishonesty against a conveyancer dishonestly concealing hundreds of illegal vendors gifted deposit), must ALWAYS take into account, any criminal loss or damage caused to the borrower. (Although this is a matter for the Court to assess).
Any lawyer, acting for a Claimant, must consider the criminal issues noted above.
Even though Buy to Let (BTL) mortgages were never regulated to the same strict level as residential mortgages, and not actually regulated by the Financial Services Authority (FCA), as such, neither the FCA nor the Financial Ombudsman Service (FOS), had no protocol to handle any btl-based complaints by consumer. However, every time a complaint was made to a lender, the lender would always send an FOS complaint form out.
With all the weight of the above, by what legal right did the Department of Public Prosecutions (DPP) in late 2010, force a three year long joint Police/SFO fraud investigation against just one particular developer, where at least a dozen valuers were arrested, to be closed, with immediate effect allegedly due to “Lack of Evidence”.
Although btl mortgages were not regulated by the FCA, in the same manner as a Residential Mortgage, if any CRIMINAL Activity was used by any professional, or the lender, as well as making any btl mortgage NULL and Void, that must have been dealt with by the police/SFO.
The above illegal activities took place in relation to just one property developer, in which the SRA have identified 452 occasions where dishonesty had been proven. They also hold a list of some 600 other properties, financed by just one lender, who, on seeing the SRA 2010 Tribunal Report, immediately successfully sued one particular conveyancer, for mortgage mis-selling.
Instead of paying anything out in damages to any of those deceived borrowers, not only did they come to a private, out of court settlement, wrote off all 600 mortgages, but never told any borrower for many years. Where there has been fraudulent concealment time does not run.
What this must have meant, was that any property, that was sold to an unsuspecting landlord, as an unlicenced HMO, must have been a criminal act.
As that was the case, then no property sales contract, nor any mortgage contract used to finance that purchase, would have been legally valid. From that, the following acts would have been illegal: –
The contract of sale by the vendor, to the buyer of the property would have been fraudulent.
The mortgage contract associated with that purchase, must have been declared Null and Void, and therefore unenforceable.
No lender would have had the right to charge interest payments against the mortgage.
Any County Court Order for repossession, by the Lender, would have been unenforceable, and an act of THEFT by Lender.
Any High Court Order for a Mortgage shortfall Claim by any Lender would have been unenforceable, and an act of THEFT by Lender against the borrower
There would be no excuse by any High Court, Property Division, not to have been aware of the implications of the 2004 Housing Act. The only way that could have been achieved, was if evidence had been concealed, or interfered with, from the Court.
There can also have been no legal excuse, for the DPP, in 2010, to close down a 3-year long SFO fraud investigation into this situation, where at least 10 valuers were arrested, with immediate effect, due, allegedly, to “Lack of Evidence”. After all, just one property sold as an Unlicenced HMO, was a criminal Act, let alone unknown hundreds of such criminal transactions.
Actions against potentially dishonest solicitors, financial advisors, mortgage lenders themselves, all need to be investigated.
Also, despite a number of requests, the SRA have refused to disclose:
A copy of the list of 452 properties, (where, in 2010, the SRA had proven dishonesty by a conveyancer, Watson & Brown, selected by the developer to act for the buyers – an appointment that should have been censored by the SRA due to the potential conflict of interest that caused).
A copy of the list of 600 properties, presented to the SRA by GMAC, during the SRA 2007-2010 Disciplinary Tribunal investigation into the above conveyancer firm, (where Shoosmiths, on GMACs behalf, issued a successful High Court action against the indemnity insurers of Watson & Brown, for mortgage mis selling (proving all the above 452 mortgages must also have been mis sold). As a result of that High Court action, GMAC received an undisclosed out-of-court settlement, GMAC then wrote off all 600 mortgages but bever informed the borrowers of that, nor did GMAC offer any compensation for the mis sold mortgages.
This successful High Court action by GMAC, must also have proven that all those 452 mortgage contracts, issued under the supervision of Watson & Brown, were mis sold Therefore, any future High Court action for a mortgage shortfall, by any lender, against any borrower, where Watson & Brown were the buyer's conveyancer, must have had no legal right to do so. Also, as any mortgage contract, that was proven mis sold, it must be the lender's responsibility to meet the borrowers' losses.
Now, to achieve such a manipulation of evidence within our Legal System, can only have been possible, if there was a criminal conspiracy in place, to conceal the above situation.
This conspiracy must have included the following: –
The Vendor's Corporate lawyers.
The Vendor's selling lawyers.
The Buyer's conveyancer.
The RICS qualified Valuer
The Valuer firm's corporate lawyers.
The Lenders selling solicitor.
The Lender's Corporate lawyers
Every law firm used to enforce any mortgage shortfall or repossession order,
Every law firm putting forward a defence for one or group of investors, for the Tort of being criminally sold an unlicenced HMO.
The SRA, for failing to regulate the law firm involved, and for failing to report its findings in regard to the sale of unlicenced HMO's.
The FCA, for failing to regulate the lender firm involved, and for failing to report its findings in regard to the sale of unlicenced HMO ‘s,
The DPP, for failing in their duty to recognise the above issues, the majority of sales based on CRIMINAL ACTIVITIES, would have had more than sufficient evidence to proceed to prosecution. (Unless the Government of the Day had some influence here… ?)
To add insult to injury, with one particular Lender, within a few months of issuing what has now been proven to have been a Voidable Mortgage Contract, they would sell, by securitisation, that voidable mortgage contract to a second Lender. Sometime later, that second Lender, after repossessing the property, would take out a High Court Writ, for the alleged mortgage shortfall on that void mortgage contract.
Another point that must be considered here, is that, back in 2007, two legal Regulators became involved in investigating this crime, the Solicitors Regulatory Authority (SRA), and a joint West York's Police Serious Financial Crime Unit, and the Serious Fraud Office
As soon as the SRA started their Disciplinary Tribunal investigation into the affairs of the main buyer's conveyancer firm, back in 2007, there can have been no excuse for the SRA not to have been fully aware of the criminal implications of the 2004 Housing Act, and from the numerous victim statements taken back then, why did they not investigate breaches of that Act?
Similarly, with the SFO fraud investigation, also started in 2007, why did they not investigate the illegal management and sale, of unlicenced HMO properties? However, during their investigations, a number of valuers were arrested (on what basis we do not know).
What we do know, was that in 2010, shortly after the SRA published their Disciplinary Tribunal Report on one conveyancer firm, Watson & Brown, for dishonestly concealing from the lender, the presence of an illegal vendor gifted deposit, in at least 452 mortgage contracts, the Department of Public Prosecutions (DPP), ordered the whole SFO Fraud investigation to be closed down, with immediate effect, due, allegedly to “Lack of Evidence”.
Surely, the only way to establish a “Level Playing Field of Justice” for the Borrowers, is to establish a government- sponsored Class Action.
If you believe you have fallen victim of a similar deception, please send a copy of this article, with details of your particular property or properties, to the following organisations.
Your Member of Parliament.
If you have been sued in a High Court by your Lender, send that High Court a copy.
Copy me in on any documents, so if we manage to get a Class Action going, you can be included.
Geoff Morris has been one of the main whistle blowers, since 2007, along with Rod Hilditch, a semi-retired Compliance Officer, fighting for justice, on behalf of hundreds of property investors, who, between them, were deceived into purchased many hundreds of unlicensed HMOs. Although they were not regulated by the Financial Conduct Authority (FCA), unlike residential mortgages, this seemed to give carte blanch to certain Professionals, and lenders alike, to be able to carry out dishonest and, in some cases, even criminal activities, with no fear of the law. In fact, in 2010, following a 3 yearlong investigation, when the SRA proved that one conveyancing law firm, as dishonestly concealing an illegal vendor gifted deposit from the lenders, not once, but in 452 occasions, a similar length investigation by a joint police/SFO fraud investigation, the DPP ordered the whole 3 year enquiry closed, with immediate effect, due to “Lack of Evidence”.
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