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Hello,   

From what I've been reading on the forum, (and please correct me if I've got it wrong)

a. It's illegal to use a closed bridging loan to buy a BMV property and then remortage immediately = mortgage fraud ?

b.  It's OK to buy a property using a bridging loan and remortgage after 6 months ??

I'm sure many people use this method to build their portfolio, so how can it be illegal ?

Why are there so many courses etc., advertised on how to do it if it is illegal ?

If it is OK to go down this road using option (b) where do you find lenders for bridging loans ?  as I don't think High Street lenders would be interested in this method ?

Can anyone recommend any ?

Then what about remortgaging ?  what lenders would do this ?  please don't say do a 'google search'   'cos as a newbie, I wouldn't know if I were approaching someone reputable and trustworthy or the local cowboy !

Is there any chance that after obtaining the necessary bridging loan, the re-mortgage would not be forthcoming = nightmare time !

 I hope I've not confused you too much - I am  !

Greenwean

I don't think what you're talking about is illegal as long as you tell the truth throughout.

However, the problem is that when you approach the lender for the remortgage, they will ask how long you've owned the property for, and when you answer "i bought it yesterday with a bridging loan" they'll say "come back in 6 months".

The legal issues tend to be over trying to buy BMV, but somehow fool the world into thinking you've bought at 100% OMV  (when you've bought at, say, 75% of OMV, hence "BMV"), so you can remortgage in such a way that you get a no money down deal.

Poor Dave has it correct.

You can do anything you want as long as you are using your own money. If you want to use someone else's money you need to tell them what you are doing. If you intentionally take steps to deceive them because you know they will not provide the funds otherwise then you would be committing financial fraud (intentional deception to obtain a financial gain).

The litmus test is how Poor Dave noted. If you tell the lender what you are doing and they are fine making the loan then you are in the clear. If you hide material facts and otherwise try to disguise part of the deal (seller inducements, seller cash backs, loans between the seller and buyer, loans paid off by the seller for the benefit of the buyer, etc) then you would be committing fraud.

If you buy now and then wait 6 months many lenders will consider the paper value as opposed to the prior sale price. Hence there is no fraud. Some lenders might even allow you to refinance or to obtain a subsequent advance in less than 6 months.

Make your deals fit the rules and make sure you are not trying to break the rules through side deals. It is actually simpler to do clean deals as they take a lot less work to set up.

Two further warnings.

1. Lenders do read the forums and they do take action when they find their loan programs being abused. Not common but it does happen.

2. More troubling is the fact that lenders who notice that a specific loan broker is setting up doggy deals are then scanning to see which borrowers might have come from that broker. If a deal to one borrower blows up and there seems to be a pattern with the broker then the other borrowers are considered suspect.

One last question that was asked.

Something along the line of 'how can it be illegal if people are doing BMV deals using the techniques?'

If you travel on the motorway you will find some people exceed the speed limit. Does it mean it is legal just because people are speeding and not receiving a ticket? I am sure there are borrowers who intentionally shaved a bit off the truth and figured they were in the clear because the loan was funded. The fact the deal completed does not make it legal. The lender can take action against the borrower years later if there is an advantage for the lender to do so. Miss a payment or otherwise have trouble and the lender just might decide to take legal action for the prior fraud.

John Corey

Follow me on Twitter -> www.twitter.com/john_corey 

Thank you PD and thank you very much John for taking the time to explain.

As i've previously posted I can't buy any properties myself for a (hopefully) short time, but my partner is interested in buying BMV, so I need to find out as much as I can, neither of us wants to do anything 'illegal' 

Thanks again

Greenwean

JasonPP:

Following what John Corey said, have you; John, or anyone else experienced this or know anyone who has been prosecuted/fined by a mortgage lender? I'm just curious

Prosecuted - as this is criminal the government would bring the charges. It does happen.

Fined - Lenders do not fine the the customer. They pull the facility or reach some other agreement to terminate the relationship. Yes, I know that has happened also.

As I keep saying it is like speeding on the highway. Many folks will avoid a ticket. Some will get fined or ticketed. If someone wants to take the risk that is their choice. If they are noticed they can find that the lender will no longer work with them on future loans or other issues. Lenders do watch SP as one source of intelligence on what is going on in the market.

If the only way that someone has to do a deal is to commit a crime (mortgage fraud) it shows a complete lack of talent and understanding of how to put deals together. Greed gets the better of them and they will run into problems sooner or latter.

John Corey

Follow me on Twitter -> www.twitter.com/john_corey 

I too am still curious and concerned about the legality of NMD /BMV deals.

There doesn't seem to be a straight answer.

In my research I've come across sites offering to do all the work (except finding the property) arrange bridge loan, mortgage etc., for a fee.

They state that they are 100% legal - so are they or aren't they ?

I mean wouldn't it be illegal for them just to state that they 'were legal' if they weren't - if you get my drift  ??

Would it be a 'criminal offence to use one of these financial companies ?

What is coming across is 'yes it is a criminal offence, but many people do it and get away with it, but if you get caught - you only have yourself to blam'e  would that be correct ?'

Greenwean

greenwean:

I too am still curious and concerned about the legality of NMD /BMV deals.

There doesn't seem to be a straight answer.

In my research I've come across sites offering to do all the work (except finding the property) arrange bridge loan, mortgage etc., for a fee.

They state that they are 100% legal - so are they or aren't they ?

I mean wouldn't it be illegal for them just to state that they 'were legal' if they weren't - if you get my drift  ??

Would it be a 'criminal offence to use one of these financial companies ?

What is coming across is 'yes it is a criminal offence, but many people do it and get away with it, but if you get caught - you only have yourself to blam'e  would that be correct ?'

Greenwean

Hi

I can understand your curiosity in respect of these types of deal, and can fully appreciate that the opportunity to build a property portfolio with 100% finance is a very appealing concept to someone new to property.

greenwean:

In my research I've come across sites offering to do all the work (except finding the property) arrange bridge loan, mortgage etc., for a fee.

They state that they are 100% legal - so are they or aren't they ?

You are correct in that there seem to be lots of companies offering the facility to arrange your finance and package up the deal to allow 100% funding.  I must say that I use the term "Company" in this instance in its loosest possible sense, as most of the purveyors of these schemes are not formally incorporated companies, and are in fact most likely to be commission only introducers to bridging financiers or commercial brokers.  They make their illegal claims on their websites as they are anonymous - you will note that they have very sparse contact details, usually nothing more than a mobile number or 08xx call forwarding number, certainly no business address or trace of them at companies house. 

These companies attempt to make themselves appear to be a professional outfit, but usually a few simple questions reveal that they are far from it.  A few weeks ago there was a thread on here from someone offering a "Completely Legal NMD Finance Scheme" and in an appauling attempt to create a professional image claimed to be a barrister.  It would have been laughable if not so sad!

greenwean:

What is coming across is 'yes it is a criminal offence, but many people do it and get away with it, but if you get caught - you only have yourself to blam'e  would that be correct ?'

The people who promote these scheme would like you to believe that they are arranging 100s of deals every month for many satisfied clients - I can assure you that this is categorically not the case, the odd one may go through the system but the vast majority will not even make it past the application stage.

There is a wider element to this debate; if someone wishes to become a serious investor in property, then one of the most valuable tools in their box is their credit rating and the ability to obtain a steady line of credit from a mainstream lender.  Why would someone how is serious about a future in property jeopardise the chances of becoming successful by playing around with these dodgy schemes? You may not necessarily get charged with a criminal offence but you are likely to get a CIFAS Category 4 warning on your credit file which will make any form of credit impossible to obtain.

Sorry if this post has become a bit long winded but the short answer to your question (as i suspect you already know) is that these schemes are not legal and a simple phone call to any BTL lender will confirm such.

John