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Thank you Paul for bringing it into the open. I have been worried about this for some time and is one of the reasons I do not like rent backs.

Anyway, I think you have done the correct thing by seeking professional advice. The problem BMV operators face is that their business model is based on buying properties undervalue. Therefore it would be difficult to present any other valuation document suggesting that the true OMV was closer to the purchase price. I guess anything between 5% - 10% would be easy to hide but anything more than that would be difficult to defend in courts.

I think that one of the options available to cash rich operators (difficult for newbies) is to buy property initially using some deposit and arranging a mortgage closer to the purchase price. Such a course of action will create enough paper trail to defend oneself in the courts. A re-mortgage can be obtained 6-12 months later to release the cash tied up.

I think believing 100% what the vendor says at the initial stages is naive. In my experience, I have learnt the hard way that they normally (there are exceptions) do not tell you everything regarding their finances when seeking finance.

I would also suggest getting the vendor to receive independent legal advice on the transaction and asking them to sign a declaration in front of the solicitors in future.   

I'm afraid the news from the specialist lawyers on this is bad news for us all.  The fact that it was an arms length transaction and they had signed a declaration of solvency (even if it had been witnessed by a solicitor) is no defence.  I went through all the free trade explanations with the lawyers and every twist and turn suggested here and by others and it all came back to the simple statute that if the person goes bankrupt within 5 years any undervalue transaction can be reversed.

I have been advised to negotiate down the amount of undervalue but to settle as if it goes to court I will lose.  These are lawyers that specialise in insolvency and bankruptcy and would have been happy to fight the case if it were winnable.  

I'm sorry to hear this, Paul.  You have my sympathies, hopefully settlement will not be too painful.  Please do keep us informed as to how things proceed.   If there's anything I can do to help you, then please shout.

Our industry needs insurance to cover this type of eventuality.   Are there any insurance experts reading this post who can help?

Sad days.  We try to help, yet frequently seem to get called "bad guys" or simply get kicked at every opportunity.

I found it amusing reading the relevant Sections (339 - 342) of the Insolvency Act.  It says that reversal of the transaction should be such that it restores the state to how it would have been if the transaction had not taken place.  Well,  from the direction I'm looking, you will not be getting back to the state that you were in had the transaction not occured... it's a physical impossibility!

Good luck.

Alan

Hope you can get it down as low as possible Paul and keep us posted.

 Yes there must be some insurance company willing to take this on, i will ask our broker to ask around and please others do the same and let's nip it in the bud !

BabylonBusinessFinance:

Thank you Paul for bringing it into the open. I have been worried about this for some time and is one of the reasons I do not like rent backs.

Even if it is a BTS it will affect you. I also understand that if you sell the property on to a third party, only first and second parties are affected. 

what a mess Paul, i do hope you get some sort of acceptable solution here. 

In your original post, you say

 ""The only concern is that it proceeded at under open market value so they can claim the difference.""

 How will they prove what THEY think was its market value over a year ago when estate agents assessments always vary by a considerable amount.

You may have had substantial work done to the property in the meantime - how does anyone go about proving the value of that retrospectively ?

Paul

Without wanted to add to your troubles, is having a sale reversed something that you will then have to declare to lenders in the future should you apply for another mortgage.  Is this likely to effect future mortgages

Any ideas?

Mark