Piggybank News

February 14, 2012

Sale and Rent Back banned by FSA

The FSA has stepped in following a high profile court case involving families who sold thier homes to the company North East Property Buyers on a sale and rent back scheme.  In return for selling their homes at a 70% discount, families were promised that they could stay in their properties for life as tenants. However, when the company defaulted on the mortgages and went bust in 2009 the banks threatened repossession.

The home owners started a civil case which was spearheaded by nine ‘lead’ householders of whom four subsequently appealed to the Court of Appeal, claiming that as victims of a property scam, they had an over-riding right to stay in their homes. Unfortunately for them the Court of Appeal has backed the 2010 High Court judge’s ruling, that any rights the tenants had been promised could not take priority over legal mortgages. Lord Justice Etherton said it was “impossible not to feel the greatest sympathy” for the residents who have now been advised to find alternative accomodation.

The FSA first intervened in the sector in June 2009 and implemented an interim regime a month later. This was replaced by a full regime in June 2010 which saw firms operating sale and rent back schemes being forced to apply for permits under the new regulations.  However, following a review of all 22 regulated sale and rent-back firms, the FSA has referred one firm to its enforcement division while the others have either stopped taking on new business or cancelled their permissions.  Five have agreed to undertake past business reviews which may result in consumer redress.

The FSA says that most sale and rent-back transactions should never have happened and has closed the market down “for the foreseeable future”.  Whilst the FSA has been at pains to use the word ‘temporary’ in relation to the closure of the market, it is hard to see how sale and rent-back could make a comeback given the sullying of its reputation. The FSA is urging anyone who has been a customer of a sale and rent-back firm to contact their provider or seek professional advice.

Nausicaa Delfas, the FSA’s head of mortgage and general insurance supervision, said: “ The resulting temporary closure of this market could have been avoided if sale and rent-back firms had taken the time to fully understand their regulatory responsibilities and customers’ needs.”

 

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