Housing scam uncovered

Hon John Tamihere, MP for Tamaki Makaurau, today filed complaints with the Banking Ombudsman, the Serious Fraud Office, the District Commanders, Auckland & Counties Manukau Police, the Auckland District Law Society, and the Commerce Commission, regarding a scam that is currently operating in his electorate, targeting large numbers of elderly people.

"Over fifteen separate families have been into my constituency office in regard to a refinancing scam working in South Auckland," said Mr Tamihere.

"However, it would now appear the scam is more widespread, as since this problem was disclosed in the Sunday Star Times, there have also been calls from Christchurch and Tauranga saying the scheme is also operating there."

Mr Tamihere says the scam occurs whereby people attending a seminar are advised that the equity in their house can be unlocked so that they can support other family members to buy a house. The financing deal works with a direct transfer of the property in question to the financing company, and a rent-back agreement is signed by the previous owner of the property and the financing company.

"Once a rental payment is missed a house can be sold, as the previous owners are not on the title," said Mr Tamihere.

"Simply put, lawyers have allowed this to continue, because there has been no independent legal advice. Secondly, banks have outsourced their lending to mortgage brokers without accrediting their bona fides."

"There are allegations of forgery and Credit Contract Act requirements have not been met in disclosure. I have, therefore, referred the matter on for investigation."

Please find attached Copy of letter to Police and other agencies for your information.

14 April 2003

Dear

Please find enclosed a range of documentation evidencing the following:

Over 15 separate families have been to my constituency office in regard to a refinancing scam working in South Auckland.

The scam occurs whereby people attend a seminar; they are advised that the equity in their house can be unlocked, so that they can support other family members to buy a house.

The financing deal works with a direct transfer of the property in question to the financing company and a rent back agreement is signed by the previous owner of the property and the financing company.

There is absolutely no legal or financial requirement for the transaction to occur by way of direct transfer. The prudent security is by way of mortgage.

The reason mortgages are not used is that the paperwork between mortgage brokers and banks is laundered to the extent that the equity in the house is substantial. The ability for the borrower to lend the amount sought is unsustainable by way of mortgage because the borrower cannot sustain repayments.

The cash flow to achieve the loans are obtained off the rental agreement to the finance company.

Once a rental payment is missed, a house can be sold, as the previous owners are not on the title. They are now renting the house and furthermore the equity in the house has been used by the financing company on other projects not consented to by the original owner.

On a number of occasions the primary house used to provide the deposit for a family member into a new house has also been sold, because the new purchase works on a rental system as well, without the house being able to be transferred to the purchaser until such time as a major deposit system has been worked through.

In most cases both houses are lost in terms of the new house and the old house. The finance company makes all the money on all the sales having to go through a process not requiring Property Law Act safeguards.

There are allegations of forgery and at times Credit Contract Act requirements have not been met in disclosure. Legal documentation has been executed without legal advice. Alternatively documents have been executed by the finance company and handed over to lawyers for conveyancing reasons.

Simply put, lawyers have allowed this to continue, there has been no independent legal advice. At times documents have been executed without any legal advice yet registered by Solicitors taking a fee for the conveyance. Credit Contract disclosures have not been met, and conflicts of interest have not been disclosed.

Banks have allowed this to continue, all checks and balances have broken down in regard to a vulnerable group who have been severely exploited. Banks outsourcing their lending criteria to ‘Mortgage Brokers’ without accrediting them, links the bankers to this scam.

I look forward to you making a preliminary assessment on the enclosed documentation and advising me urgently of your views.

John Tamihere MP for Tämaki Mäkaurau

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