A housing solicitor is warning home owners who are facing debt problems to be wary of signing up to schemes which promise to buy their home and rent it back to them, after a number of clients found themselves homeless.
Joanne Murray, a partner at St Helens law firm Stephensons Solicitors LLP, is concerned that there are many home owners who sign up to ‘sale and rent back’ schemes without being fully aware of the consequences should they fall into arrears or fail to check the small print of their agreement.
Joanne said: “Whilst this may sound like a convenient way of keeping your home and benefiting from a quick financial gain, homeowners should be wary of the dangers involved and the risk of finding themselves homeless soon after completing the sale.”
It is those homeowners facing repossession who are most vulnerable to the seemingly ‘quick fix’ offered by sale and rent back schemes. However, properties sold under these schemes are usually purchased for considerably less than the market value of the property, typically approximately 70%. Considerable charges and fees are also often deducted from the amount of capital which the seller ultimately receives.
Joanne adds: “There are concerns about the procedures followed by these businesses when seeking to evict tenants. We have acted in several cases where tenants who have entered these agreements have then been faced with possession proceedings after falling into rent arrears.
“We have seen examples of landlords failing to serve the appropriate notices on the tenant, incorrectly notifying the tenant that court proceedings have begun and threatening to send bailiffs to the property to evict the tenant without having obtained the necessary court order.”
The tenancy agreements which are entered into are also often unfavourable to the tenant and include clauses which allow the landlord to substantially increase the rent payable within a short period of time. The tenant then finds himself unable to pay the rent and falls into arrears, following which the landlord seeks to repossess the property.
Such tenancy agreements have in the past also had very short fixed terms, and in some cases have expired after just six months, following which the landlord could serve the appropriate notice on the tenant, take possession of the property and leave the occupiers homeless.
In 2010, the Financial Services Authority imposed regulations on businesses offering sale and rent back agreements which it is hoped will reduce the number of people left homeless. Most notably, they introduced a requirement that all agreements must include a five-year fixed term tenancy period. In addition there is now a 14-day cooling off period should tenants change their mind about the transaction and there are much stricter rules about the way such schemes are advertised.
Joanne adds: “Homeowners with money worries should think very carefully before agreeing to sell and rent back their home and should seek independent advice. Many homeowners who enter these transactions are facing the threat of mortgage repossession proceedings, however, there are alternatives. These include negotiating with the mortgage lender to agree a repayment plan, entering into a Government mortgage rescue scheme and selling the property themselves to realise its full market value. We can assist with the alternatives.”
Stephensons has one of the leading Housing legal teams in the region, which is recommended by the Legal 500, an independent guide to the legal profession.
The firm has a specialist quality mark from the Legal Services Commission for housing cases, which means it can often provide assistance free of charge, subject to qualification under the legal help scheme.
