Recently Henry Pryor tweeted a link about how Barclays have been trying to sue mortgage brokerage Savills Private Finance and chartered surveyor Stocker & Roberts Partnership for losses from an alleged mortgage fraud, which involved control of property valuations. In a nutshell, Savills allegedly fixed highly inflated valuations on properties and pocketed nice fat multi-thousand pound fee incentives for doing so.
During what I like to think of as the Boom Times, when every Tom Dick & Harry was calling themselves a property expert, it was widely known that there was an epidemic of this kind of behavior. People following these self appointed ‘experts’ methods threw all common sense and caution to the wind in the persuit of profit. One of the most common tactics when “No Money Down” deals were all the rage, was to ensure that you had what was euphemistically called a ‘property power team.’ ( No Money Down was marketing phrase coined to ensure that every property deal had none of the investors money left in the deal, it forced banks to shoulder the full risk by using their own lax remortgage rules against them.)
No Money Down System
In reality this system was about controlling every aspect of the deal right through from sale and first mortgage, valuations and remortgages or sale. A payment bung was offered to each participant. This involved;
- A dodgy estate agent.
- A dodgy valuer.
- A dodgy broker.
- A dodgy solicitor.
- And and a couple of fraudulent mortgages.
The dodgy ‘no money down system’ worked like this:
- Find property that needs a bit of work off market via your dodgy agent ( or sometimes from a dodgy lead seller) that can be bought from a distressed seller for a song.
- Instruct your dodgy solicitor for the whole process so you can tell them how to think, and they can show you how to break the law.
- Get it valued via dodgy valuers and ‘suggest’ the valuation you would like to achieve.
- Get your dodgy broker to find a dodgy mortgage deal which would involve a daylight bridge, signed up for digitally with no proper checks.( This allowed a bridge then remortgage on same property in a short timescale.)
- Tart up the property a little bit with as little cash injected as possible and a lick of paint.
- Get your dodgy valuer back in to revalue the property for the remortgage, usually at an inflated market value.
- Remortgage and extract the cash made, plus the cash you put in to refurbish, pay off your dodgy gang..er.. sorry, ‘power team.’ Rent (or sell) the property.
This scenario leads to lots of over valued property with no equity left in. It also leads to massive tax problems and negative equity, but that’s another story.
So, it came as no great surprise to me that the top end of the market contains as much corruption as the middle and lower end. Barclays and Savills have settled out of court, which means no public scandal in this case, rather, just a few web sites reporting the news and the whole stinky mess just blows away on the wind.
“Property Experts” who used this method often have huge portfolio’s mortgaged with just a couple of lenders, which is why we are now seeing so many repossessions and LPA receiver issues all with one or two banks. Many have since gone bust when banks finally stopped being greedy and got wise to the monster they had created with easy lending, a lack of control and proper regulation over the process. I would like to bet that Barclays versus Savills is the tip of a very large iceberg that has not floated quite out into the open ocean for all to see yet