PLEASE NOTE: This article was published on the date listed below and may now contain information that has since been updated or changed. We have retained this article as it may still contain helpful comments. However, we advise you to make an appointment to see us for the most up to date information on this topic.
Buy-Back Schemes Revisited
In our Spring 2003 edition of the Law Report, we reported that there had been considerable publicity concerning “buy-back schemes” and urged homeowners to be extremely cautious when dealing with any scheme involving elements of a “buy-back”.
Versions of the Buy-Back Scheme
As we reported, there are many variations of the buy-back schemes, but essentially they involve homeowners being persuaded by a variety of means into transferring their home to a company fronted by unscrupulous promoters. Often, this occurs without the owner ever receiving payment for their home. The company then rents the home back to the owner on the basis that the owner can buy the property back from the company at a later date. However, in the meantime, the company takes out a mortgage over the property and then disappears, along with the proceeds of the mortgage, leaving the original owners without a home, or any payment for its original value.
Breach of Professional Duty
The involvement of solicitors and lenders in such a scheme was at the centre of a recent High Court decision. The solicitor had acted for both the lender and borrower. In addition, the solicitor acted for the promoters of the scheme and the innocent homeowners. The Court found that all original owners were essentially cheated or tricked by the promoters of the scheme into parting with legal ownership of their properties. The Court also found that the solicitor had committed “numerous and extreme” breaches of professional duty. However, the various lenders involved in the scheme who obtained mortgages over the properties were not aware of the scheme’s dishonest intent. Neither were they affected by any knowledge on the part of the solicitor or promoters of the scheme of its dishonest intent.
The effect of this decision is that although the homeowners may in certain circumstances be able to have ownership of the property transferred back to them, the land will still be subject to the mortgages. Given that in the usual course of events the promoters have disappeared, the options for recovering monies lost are essentially limited to claims against the solicitor involved. Often the solicitors will have been involved in a number of similar transactions and be facing multiple claims as a result and therefore the prospects of recovery may well be doubtful.
Our advice was then and still is now that it is dangerous to get involved in such arrangements. At the very least you should see us first. Our commitment is that we have never and will never become involved in such schemes.