This was posted this on a forum recently, and I thought it should be given a wider arena.
I was talking to a friend of mine yesterday who is very involved in getting a number of companies approved under the FSA regulation for Sale and Rent Back he also has an extensive history working with regulated FSA regulated products.
He brought to my intention that the FSA and similar government bodies are now starting to put more resource into investigating the “BMV” industry and the systems that are being used.
1) Mortgage Fraud and the grey area of NMD
2) Lease options
There have been many previous discussion on mortgage fraud and NMD so and I don’t feel these need to be had again.
However Lease Options are the topic of the year “buy a house with a pound” advertising going on and so on.
He warned me that there is increasing awareness of these actions by the FSA and other bodies and that the trading of options is a regulated activity. As well as the risk that a vendor could easily challenge the power of a lease option based on the contract being unfair and that they did not understand it at the time they signed it.
I suggested that I presently pay for my vendors to have their own legal representation but this might not be enough. He suggested that a Key facts sheet similar to that you would receive when taking out a mortgage, would be better placed that spells out:
• The property is likely to be worth a substantial amount more than it is now when I purchase it in 5-7 years and illustrate this with numbers/ diagrams.
• That I do not have to purchase the property in the future
• That I am able to walk away from the transaction at any time
This would be cheaper than paying for a solicitor for my vendor for each transaction.This does not surprise me at all really. The FSA are doing their best to close all doors on anything suspect looking. It is inevitable that should the lease options idea come more to the fore that they would peer at it more closely just as they did with SARB-which is now all but dead.
Ive been saying for some time that they are likely to to look for any potential loop holes in the systems around and look to close them. Options has got to be top of that pile filed under ‘take a closer look’. Also the way that the heavy marketeers have jumped on the band waggon to show people ‘how to buy a house for a £’ etc has all the right hallmarks of something that would come to their attention sooner or later.
I suspect even those that are using them-even though they may have done everything they possibly could to protect the vendor, that there is a good chance on lots of these deals, that when the vendor is out of the woods as far as their initial debt issues are concerned, that they may well go back and get old paperwork checked to see if they can reverse the decision they made previously on ‘ I was not of sane mind’ grounds.
The FSA are a law unto themselves, but changing lease options would open up a whole host of other stuff they would need to look at as they are used in many other sectors, and, are currently regulated in those sectors anyway. Rules and regulations are the nature of the beast right now, so I guess we will just have to wait and see. In the meantime as an investor you must be sure you fully understand the legal implications of using lease options. Get a good solicitor and protect yourself and the vendor as much as possible. Remember, vendors are real people-not just deals on a balance sheet.