Sale and rent-back dealer is hit with £1m fine

A property agent who dealt in sale and rent-back transactions has been fined almost £1m and been banned from the financial industry.

At £945,277, it is the largest-ever fine imposed on a sole trader.

The Financial Conduct Authority said Gurpreet Singh Chadda had deliberately misled vulnerable customers for personal gain.

Although the sellers knew they would be selling at a much reduced price, they did not know that the buyers procured by Chadda would be paying the full market price – with him pocketing the difference.

In three cases, the sellers got less than half the value of their homes – and in two of those cases they received just 38% of the sale price.

Chadda was based in Birmingham, trading under the names of Red2Black Homes and B&L Homes. The FCA investigated his involvement in seven sale and rent-back transactions and found serious failings in all.

Sale and rent-back is where a home owner sells their home and then rents it back to carry on living there. They generally sell at well under the market price, and are often vulnerable as they are in financial difficulties and need to raise money to pay mortgage arrears and avoid repossession.

Chadda told the sellers of the properties that he would be buying their homes when in fact the purchasers were other people.

He failed to tell the sellers that these purchasers were not authorised or regulated, leaving them without protection. He helped the purchasers obtain mortgages, in the knowledge that they were giving misleading information to mortgage lenders – who would not knowingly lend on a sale and rent-back transaction.

He also wrongly claimed that the price sellers would get would be based on an independent valuation, misled them as to what their properties were worth, and charged them excessive fees.

In one case, Chadda fabricated a mortgage valuation to make it look as though the property was worth substantially less than its real value. In another, he helped the purchaser mislead the lender by saying that the seller would not be staying in the area.

The FCA believes that Chadda made £695,277 from the seven transactions.

The FCA also says that Chadda seriously aggravated his original misconduct by repeatedly and cynically lying when he was being investigated. He created misleading documents and also arranged for people to impersonate customers in order to mislead the FCA.

Tracey McDermott, director of enforcement and financial crime at the CA, said: “Chadda’s misconduct is the most shocking we have seen from a home finance arranger.

“The unprecedented level of the fine for a sole trade reflects our determination to deprive him of the gains he made as a result of his misconduct.”

The sale and rent-back industry, which was often used by buy-to-let speculators who would buy the properties cheaply and then evict the original owners, has now been effectively closed down.