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othello

Bmv Purchase Appears Risky

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FOund this on that moribund forum at SingingPig:

BMV Bankruptcy danger

I have just encountered a situation that I think we all need to be aware. This is not scare mongering it is actually occurring and the purpose of this post is purely to make others aware.

I purchased a property last year for £131k with a value of £170k. The family rented it back and are nice people. I have a signed declaration from them that they were solvent and not expecting bankruptcy proceedings. 10 months later the tax department petitioned for bankruptcy and the trustee has informed me I am liable to have the transaction reversed or have to pay the equity difference between my purchase price and the assessed market value. I have looked at every angle I can find here including trying to insure against this, without success. It seems that if, at any time up to 5 years from the sale, the vendor is made bankrupt then the trustee can come after you for the proceeds if it can be shown to be an undervalue transaction. They are not concerned that the price paid was what it was worth for a quick sale. The only concern is that it proceeded at under open market value so they can claim the difference. Relevent sections of the act if anyone wants to check this out is 339 & 340 undervalue transactions.

:lol:

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Good find Othello,

Haha, spend all your time cooking up fanciful figures and getting them logged throughout the system and then whammo somebody wants you to make good on those figures.

Considering that the original owners could not afford their mortgage it is pretty likely that they are going to be in just the same situation in one of these deals (unless heavily subsidized by the landlord).

Another little short-term fillet to the market turning into a timebomb waiting to go off.

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I think we've seen this before here.

It's a little gotcha to look out for if you're a bottom feeder.

But there could also be trap for the tax office here as well. Imagine they insist of reversing the £130K purchase of the house because they think was worth £170K, and then they find they can't even sell it for £130K. They have to give the buyer his £130K back but it's gone... the bankrupt has frittered away the cash and the house doesn't have the equity anymore... does the tax office fork out the cash from public funds?

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I think we've seen this before here.

It's a little gotcha to look out for if you're a bottom feeder.

But there could also be trap for the tax office here as well. Imagine they insist of reversing the £130K purchase of the house because they think was worth £170K, and then they find they can't even sell it for £130K. They have to give the buyer his £130K back but it's gone... the bankrupt has frittered away the cash and the house doesn't have the equity anymore... does the tax office fork out the cash from public funds?

It's funny how the revenue can rapidly change their mind when this sort of thing happens. Years ago I played in a band and did quite regular gigs for small amounts of money which in no way covered the costs of kit, transport, hiring practice studios on so on. One of the guys in the band got tax audited for some reason and was given the 3rd degree for not paying income tax on the money he got from gigs until he pointed out that he actually did it at a loss at which point, the revenue suddenly decided it wasn't taxable after all and so wouldn't be giving him a refund. Bastards the lot of them.

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FOund this on that moribund forum at SingingPig:

BMV Bankruptcy danger

I have just encountered a situation that I think we all need to be aware. This is not scare mongering it is actually occurring and the purpose of this post is purely to make others aware.

I purchased a property last year for £131k with a value of £170k. The family rented it back and are nice people. I have a signed declaration from them that they were solvent and not expecting bankruptcy proceedings. 10 months later the tax department petitioned for bankruptcy and the trustee has informed me I am liable to have the transaction reversed or have to pay the equity difference between my purchase price and the assessed market value. I have looked at every angle I can find here including trying to insure against this, without success. It seems that if, at any time up to 5 years from the sale, the vendor is made bankrupt then the trustee can come after you for the proceeds if it can be shown to be an undervalue transaction. They are not concerned that the price paid was what it was worth for a quick sale. The only concern is that it proceeded at under open market value so they can claim the difference. Relevent sections of the act if anyone wants to check this out is 339 & 340 undervalue transactions.

:lol:

Although amusing from the singing pig bmv aspect, I wonder how the revenue can value the property. Something is worth what someone will pay. You would have to prove condition, it has sitting tenants which would have reduced it etc...

Sounds like a mare that would be to hard to enforce unless you sold it on for a grand or something.

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Although amusing from the singing pig bmv aspect, I wonder how the revenue can value the property. Something is worth what someone will pay. You would have to prove condition, it has sitting tenants which would have reduced it etc...

I have to say I hope the whole practice is stopped. Sell to rent back causes citizens advice in Oldham enough concern for them to put ads in the paper warning about it!

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Yep. For a transaction at undervalue, the period within which it can be unwound is 5 years (s 341 of the Insolvency Act). The sale & rent back mob are going to have trouble I reckon as the'r 'customers' are almost invariably insolvent to agree to this kind of deal.

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And the original owner could find themselves subject to a Bankruptcy Restriction Order of between 2 and 15 years.

What sort of behaviour could lead the official receiver to apply for a BRO against me?

When deciding whether to make a BRO, the court may take into account your behaviour before and after the date of the bankruptcy order, so the official receiver will be looking closely at all your conduct.

We cannot list all the actions that could be considered dishonest or blameworthy in relation to your affairs, but here are some examples the official receiver could include in his report to court:

incurring debts that you knew you had no reasonable chance of repaying

giving away assets or selling them at less than their value

deliberately paying off some creditors in preference to others

gambling or making rash speculations or being unreasonably extravagant

failing to keep or produce records that would explain a loss of money or property

fraud or fraudulent breach of trust

causing your debts to increase by neglecting your business affairs

failing to supply goods or services that have been paid for

carrying on a business when you knew or ought to have known you could not pay your debts

The more harm your behaviour causes your creditors, in the court's opinion, the longer the BRO is likely to last.

From:

http://www.insolvency.gov.uk/guidanceleaflets/guides.htm#1

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Yep. For a transaction at undervalue, the period within which it can be unwound is 5 years (s 341 of the Insolvency Act). The sale & rent back mob are going to have trouble I reckon as the'r 'customers' are almost invariably insolvent to agree to this kind of deal.

How does this not apply to any buyer? Is it because they deliberately say that they are paying BMV? But what would happen if I saw a house was on for £170K and offered £130K, had it accepted and bought it. Could I be done too? What, if any, is the difference?

Peter.

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Yep. For a transaction at undervalue, the period within which it can be unwound is 5 years (s 341 of the Insolvency Act). The sale & rent back mob are going to have trouble I reckon as the'r 'customers' are almost invariably insolvent to agree to this kind of deal.

What a shame that this doesn't work for overvalued transaction...

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How does this not apply to any buyer? Is it because they deliberately say that they are paying BMV? But what would happen if I saw a house was on for £170K and offered £130K, had it accepted and bought it. Could I be done too? What, if any, is the difference?

Peter.

It does apply to any buyer.

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It does apply to any buyer.

Presumably a surveyor's valuation would count as proof that what you buy is the market price? Or property has bene on the market for X period and this was the only offer?...

Peter.

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Presumably a surveyor's valuation would count as proof that what you buy is the market price? Or property has bene on the market for X period and this was the only offer?...

Peter.

Presumably. But if you get an obvious 'steal' and then the seller goes bust 3 months later, you've got a problem. But it's only fair. Why should the rest of the creditors be shafted at your expense? Their loss would be your gain.

Edited by newbie

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Only if they were totally unconnected with either party to the transaction.

Well, they'd have to be engaged by the buyer, but as professionals, they are supposed to be independent, no?

Peter.

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Well, they'd have to be engaged by the buyer, but as professionals, they are supposed to be independent, no?

Peter.

Note that the disparity between the price paid and the value must be "significant":

339 (3) For the purposes of this section and sections 341 and 342, an individual enters into a transaction

with a person at an undervalue if—

(a ) he makes a gift to that person or he otherwise enters into a transaction with that person

on terms that provide for him to receive no consideration,

(b ) he enters into a transaction with that person in consideration of marriage, or

(c ) he enters into a transaction with that person for a consideration the value of which, in

money or money's worth, is significantly less than the value, in money or money's worth,

of the consideration provided by the individual.

Edited by newbie

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couldnt it be argued that part if not all of the undervalue was in exchnage for lower/no rent? wouldnt that be the structure of the deal. unless it was the buyer taking advantage.

dont know what rent they were paying but presumably under market rent? take that into account and you might get a more reasonable purchase price?

if it was still undervalue then i agree with the legislation

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couldnt it be argued that part if not all of the undervalue was in exchnage for lower/no rent? wouldnt that be the structure of the deal. unless it was the buyer taking advantage.

dont know what rent they were paying but presumably under market rent? take that into account and you might get a more reasonable purchase price?

if it was still undervalue then i agree with the legislation

Sure, that'd be part of the consideration. But it would have to be a lease with a decent term and not a short hold tenancy where the tenant can be given his marching orders on a month's notice.

The courts are sensible and would take all of the surrounding circumstances into account. The judge wouldn't want to rip-off or punish sale & rent back operators, but if they've got too sweet a deal then it can be opened up again. Not because it's unfair on the ex-home owner, but because it is unfair on the remaining creditors.

When your liabilities exceed your assets, then your freedom to dispose of these assets is limited because economically they aren't really yours any longer. Your unsecured creditors have a stronger moral claim to them and they need to be protected. To the extent that a deal is excellent for a sale & rent back guy means that the assets of the bankrupt have been depleted by a similar amount (his profit margin if you like) at the cost of the unsecured creditors. Ie. the profit margin comes from the unsecured creditors, not from the ex-home owner who would have lost the house anyway.

Edited by newbie

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Presumably a surveyor's valuation would count as proof that what you buy is the market price? Or property has bene on the market for X period and this was the only offer?...

Peter.

Presumably this would be one occasion where a low valuation for mortgage would be useful!

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Surely the one offer you had of £130k in this case is the price setting one. You could look at properties in the surrounding area but again you would have to look at conditions - speed of sale,tenancy etc...

I don't agree with the practice - it just seems to be a madness. surely it could apply to a cheap car you buy off a disgruntled wife of a cheating husband. How do you know circumstances. Now we have to credit check someone who is selling a house (a distressed sale - may be one of the reasons for selling)

What about a cheap sale on probate due to people wanting a quick sale? etc..

Just seems scary that you have bought something in good faith and then people come back after you. Although the BMV people need a good kicking :)

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I heard that one of the problems with sell and rent back for people is that apparently the maximum tenancy agreement is for only 6 months.

After that 6 months is up the new owner could decide that they want to sell their newly aquired property and get rid of the old owners. For example if they got into financial difficulties and needed the money from the sale.

This makes it very risky for the sellers.

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  • 295 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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