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SarahBell

Sale And Rent Back Case

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http://news.bbc.co.uk/1/hi/england/shropshire/8142431.stm

The judge ruled they could stay in the property for life by either taking out a new mortgage and becoming the owners, or through renting the property from the mortgage lender who had repossessed it.

He said when they died, their children could inherit the tenancy.

The last bit is interessting as it would imply that protected tenancies (now not legal supposedly) are being created by this and of course that mortgage lenders will have their security very badly damaged potentially by that..... houses with protected tenancies are going to be sold for a lot less than normal ast properties.

I am a fan of letting the market do its stuff, in this instance however its pretty clear to me that the wolves are preying on the dumb in increasing numbers... the true horror of this bizarely will emegre when prices rises, the new owners cash in and the old owners and then told to leave.

The other area thats going to get "revealed" as a hot bed of problems is equity release (or lifetime mortgages).. this is an area which supposedly is regulated ... but whats happening now is that a number of providers are offering better terms to customers.... but they are only agreeing to deals where they feel the property has development potential.... in the end when the person dies the deal will be honoured but the lender will then develop the property and take an arguably excess profit form it.... customers are not told that some lenders are judging properties based on development potential, customers are often unaware of the issue... it'll really only emerge when complaints start to rise off the back of what happens when these deals end.

I'd mark down "interest only ", "sale and rent back" and "equity release" all as areas where the next scandals will emerge... for once these are all areas where the FSA has recognised the risk and stepped in.... but surprise surprise.. the scandals will still happen...

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Well, to be fair, the tenancy agreement they had with Repossessions Stopped was for life - and possibly the life of their children too? We do not know what the TA said.

RS got into difficulty, and presumably the property was repossessed from RS by the bank. The bank wanted to evict the couple, HOWEVER, the couple's interest in the property ranked above the bank's.

I guess that is all this case says, and it's not really news at all.

Now, if it turns out that the couple were on an AST... it would be a whole different ball game.

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No, youve missed the point a bit there.

These firms tell you and even give you a contract that states that you can live there as long as you like.

However, no bank will agree to give the mortgage with such an onerous 'third party interest'.

The contract is just a bit of paper youve been given by some spiv.

What happened was the house were bought BMV (60-85%) and then instantly remortgaged up to 95% and the equity stripped out.

Once these firms realised that houspe prices (shock horror!!!) didnt always go up, they just stopped paying the mortgages.

This was never about being landlords - it was about stripping equity out that the original owner couldnt.

edt to add: this is going to run and runi tell you as i know of one firm with hundreds and hundreds of houses on its books that stopped paying a while ago

Edited by CHF

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So what does this do for the BMV market in the future?

In effect you can no longer get rid of the tenant so unless you wanted to be a LL for life then the business model is no longer viable.

What will this also do for mortgage lending; if you were a bank would you lend to a company / individual who was going to use the money to fund a buy and rent back scheme?

IMO another reason why HP's will fall further.

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So what does this do for the BMV market in the future?

In effect you can no longer get rid of the tenant so unless you wanted to be a LL for life then the business model is no longer viable.

I really cannot believe that.

If what is being suggested on here is true, it means that the mortgage co took on a property in good faith, with a guaranteed income stream, with an AST tenant. Yet the judge deems the tenancy to be something other than an AST. Unlikely. This will be appealed and the bank will win the appeal.

What this WILL do - if the above is actually the case - is to destroy the sale and rent back market entirely. No bank will fund it any longer.

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What this WILL do - if the above is actually the case - is to destroy the sale and rent back market entirely. No bank will fund it any longer.

And what harm will that do exactly? (bar removing a pile of vultures from the market).

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I really cannot believe that.

If what is being suggested on here is true, it means that the mortgage co took on a property in good faith, with a guaranteed income stream, with an AST tenant. Yet the judge deems the tenancy to be something other than an AST. Unlikely. This will be appealed and the bank will win the appeal.

What this WILL do - if the above is actually the case - is to destroy the sale and rent back market entirely. No bank will fund it any longer.

Yep ... that's the way I see it.

I suspect that the sellers were "told" they could rent for life but had an AST, after all that is the legal mechanism for letting out a property. Not sure where deemed and implied falls into law outside the workplace.

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exactly - its not an AST is it.

Its a contract that says you can live there forever as long as you pay the rent.

Banks are happy to lend on an AST but not on residential basis only BTL and not for a lifelong tenancy.

Trust me, if the banks know this is the plan, they have to decline to lend. Lots of amateur SRB would send in the contract as if it backed up there case. Banks would send it back and say no due to the contract. The case would then be submitted with that bit left out and banks would lend!

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a stupid ridiculous judgement - a sentimental one that flies in the face of all logic.

The secured lender ranks first - he has to or the cost of finance rises further to cover the risks of a protected tenancy. If he exercises his security then the tenancy should fall away. The original repo was right.

You can argue all you want that it's not fair, but the alternative is ridiculous. Yes, the BMV people may have taken these people for a ride - and I suspect what the judge has tried to do is put forward that the tenant should be able to pay the rent to the new landlord (the secured lender) and so the secured lender is not out of 'pocket' - which is rubbish, of course, but is 'nice'.

I suspect it will be appealed - and should be too.

As for buying BMV, well of course they only paid £65K for it - it was a forced sale, why pay full value for it.... - that is just the paper spinning as usual to make some people out as charlatans and cheats.

Also, what I don't really understand is how they can lived there for 20 years and then borrowed so much out of it that they still could not meet what was presumably less than a £65K mortgage (assuming there was no top up unsecured loan (because that would be stupid fckuing idea, wouldn't it NRK ?)). [yes I know all about illness etc. but you can service a £65K mortgage in most cases by two people working almost minimum wage]. This is protecting muppets as usual.

Then there's all this crap about 'rent for life' - they took legal advice when they sold - they had to, they had a mortgage. They took on the lease - if people are too sodding stupid or tight as to ask what the documents that take their house out of their legal ownership mean then should we really be protecting them ? From what has been in the press, if they had a proper protected tenancy, I'm a Dutchman, Shhteeve. They should have done their diligence - a first year law student could have told them the obvious hole in their tenancy - the landlord may not have perfect title to it - I would be staggered if the mortgage 'solutions' company had offered or been able to offer anything more than an AST - because that would reduce the remortgageability and remarketability of the place.... and more importantly the value of the collateral offered to the lender...

Edited by Rachman

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