In 2004, following widespread public outrage, at the manner in which many unscrupulous landlords were treating their tenants, who were all living in shared accommodation properties, the 2004 Housing Act was introduced. The objective of that Act was to introduce mandatory HMO (House of Multiple Occupancy) Certification, for all residential properties, with more than 4 rentable bedrooms, a Local Authority status of multiple tenancy, and where the tenants were from at least two separate households.

In the following activity, this was no mistake. This was a deliberate criminal conspiracy, not just to get the borrower to unintentionally to enter a contract to purchase an unlicensed HMO, but also, by getting them to accept an illegal vendor gifted deposit ( proven by the SRA, in 2010, of being dishonestly concealed from the lender, not by the borrower, but by their conveyancer, not once, but in at least 452 occasions, this was used in an attempt to put all the blame on the borrower as being guilty of mortgage fraud.

On top of that, the Mortgage Security Value (MSV), was, in many cases, proven from us seeing nearly 100 such MSV’s, done on a deliberate breach of contract by the borrower, against the lender, as having been fraudulently estimated on a commercial basis, which the lender, after seeing this MSV report, knowingly used as if it was the REAL MSV.

When the lender, after many complaints from affected borrowers, eventually took successful legal action, in many cases, for professional negligence against both the valuer and the conveyancer involved, instead of writing off those fraudulent contracts, and including in their High Court claim, the cost returning those affected borrowers to the financial status they would have enjoyed had they not been deceived into entering a contract containing at least 1 false instrument, the lender accepted an arbitrary, out of court settlement, that they then used to reduce the alleged mortgage shortfall.

But the real issue here, was the fact that in most cases, as most properties had more than 4 bedrooms, and a local authority status of multiple tenancy (proved by at least 90 fraudulent GMAC commercial valuations, presented to the lenders as if they were the real msv), these properties were sold, either fully tenanted, or with a vendor rental guarantee payable for up to 6 months, each of these properties, due to the 2004 Housing Act, without mandatory HMO certification, were not only illegally tenanted, they were also criminally sold to an unsuspecting landlord.

From that point onwards, it would have been a criminal offence for a landlord, not only to manage such a property, but also to sell such an unlicensed HMO to another unsuspecting landlord.

So how was it possible, in 2005, for a well-known property developer, with a Top 500 Law Firm acting as their Corporate Lawyer, to launch the following Business Model?

The 2005 Business Model, based on selling hundreds of unlicensed HMO properties.

The main features of this 2005 business model, were based on the following: –

1. Every property’s Mortgage Security Value (MSV) was to be estimated by an RICS-qualified surveyor.
2. Every property was sold with the benefit of a vendor gifted deposit.
3. Every property was sold, specifically for use as shared accommodation for student tenants.
4. Because of that, each property must have had a Local Authority status of multiple tenancy.
5. Every property was to have a landlord, selected by the seller, to install a full complement of tenants, prior to the sale, or a 6-month retail guarantee to be paid by the vendor.
6. As most properties had more than 4 rentable bedrooms, unless they had mandatory HMO Certification, they would have been classed as unlicensed HMO ‘s.
7. The Lenders were all selected by the vendor’s in-house Broker.

Before we analyse each of the above sales features, consider this.

After the introduction of this 2004 Housing Act, all of these rogue landlords, at which the 2004 Act was aimed, would have found themselves between a rock and a hard place. They would either have to had pay to have their properties modified to meet the new HMO Certification standards, or to try and dispose of them, rapidly, in their unlicensed state.

If a large property developer came along and offered to buy these portfolios of unlicensed HMO s, unless that property developer bought them, in full knowledge of their unlicensed state, that would have been a criminal act by the seller. In any event, if the buyer had cash, that would have been an opportunity to snap up those properties, at a very good price.

Once purchased, unless the new owner made good, and got these properties up to HMO standards, it would have been a criminal act of the developer to sell these unlicensed HMO properties to unsuspecting other landlords/investors.

Also, a number of large (20 to 40 unit or more “Cluster flats”) were purchased by this developer, most of which had more than 4 bedrooms, and as most were tenanted at time of acquisition, that acquisition would have been ILLEGAL. In most cases, all these units were then sold on, illegally, as unlicensed HMO s.

Now let us analyse this Developer’s seven sales feature in more depth: –

1. MSV estimate. In at least 90 cases that we have in our possession, the MSV was done in breach of contract against the Lender’s specific instructions, which was to estimate the MSV, as if being sold with vacant possession, and with a Local Authority status of Owner Occupier. It was seen to have been done on a commercial basis, using anticipated rental income, and a Local Authority status of multiple tenancy. Furthermore, in the 90 or so MSV’s in our possession, the valuer added something similar to “If the anticipated rental income should fall, this will seriously affect the valuation we have estimated. Also, if this property were to revert to “Owner Occupier” status that would also affect our valuation.”
   • This commercial valuation was then substituted for the REAL MSV, presented to the lender, as if it was as requested.
   • As the Lender would have seen that MSV, prior to issuing their mortgage contract, they would have been aware that they actually lending 85% of the COMMERCIAL, and NOT the real MORTGAGE valuation. I believe that was an act of deception by the Lender.
   • Furthermore, as the lender would have seen evidence from the conveyancing file, that showed the property to be sold, was an unlicensed HMO, that was also a Criminal act by the lender.