Another example of property fraud … and some tips if you are thinking of equity release

Posted on June 21, 2017

A recent fraud case has highlighted how important it is to take legal advice before releasing equity from your property*.

Edwin McLaren and his wife Lorraine were found guilty of property frauds that came to a total of £1.6 million. The police inquiry took 2 years and a total of 48 properties were investigated under a fraudulent scheme in which the fraudsters transferred owners’ title without their knowledge. In all, twenty-nine cases relating to properties all over Scotland and frauds between April 2008 and November 2012 came to court.

What was the fraud?

Mr McLaren targeted people who were struggling financially and/or unwell or bereaved. He offered to sort out their financial problems by using a loan or lease back agreement. As part of the process, he would tell his victims that they were releasing some of the “equity” in their property in return for a payment to help them sort out their debts. In fact, they were signing over full ownership of their property to McLaren’s own friends and family.

(*Source: BBC report)

What is equity release?

If you have bought your house outright or have paid off your mortgage[s], you are said to own the full “equity” in your house. In other words, it belongs to you outright.

If you have a mortgage that covers, for example, 20% of the value in your house, you are said to own the equity in 80% of your house. There are various banks and businesses that will buy some of your equity for a lump sum and allow you to remain in your house in return for making regular rental payments.

What is a lease back agreement?

A lease back agreement is a method of releasing equity in your house. The homeowner sells a part of their equity in their property to a third party and then pays a form of rent for continuing to live in the property. It is a way of releasing some of the value of the house and people most often consider it either to pay off debts or to pay for a special holiday or purchase. It is not without risk …

How can you be sure your property is safe?

If you own all or a significant part of your property and are considering releasing equity from your house, always take professional legal advice before taking any action.
Ensure that you seek legal advice on all documents before signing them so that you understand fully what the documents mean and the effect of your signature.
Do not hand over any of your formal title documents to your property to a third party without legal advice.
You should also consider speaking to a professional financial advisor about the financial effect of releasing equity from your home.

Genuine equity release companies are subject to strict guidelines

While there are some risks to consider with equity release – as with all financial decisions - genuine companies who offer equity release schemes are required to follow strict guidelines. For example, they will ask you to speak to the beneficiaries of your estate before proceeding with any form of equity release as this will ultimately affect what they might inherit.

Email fraud – something else to look out for

We wrote an article recently about the increasing number of house-buyers who are being conned out of their money when buying a house – particularly towards the end of the conveyancing process.

This often happens when cyber criminals email house-buyers during the conveyancing process pretending to be solicitors or banks and request account details. They then use these details to divert the funds to pay for the house (then disappear with the money). You can read that article here: An increase in fraud in conveyancing transactions

Contact

For more information about protecting your property from fraud or about equity release, contact Victoria Marshall on 0161 785 3500 or make an enquiry.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.