Pinsters looking for properties to buy need to be aware of the voluntary sale scam that has been hitting the Irish property market recently.
This scam is done with the passive connivance of both the banks and the Irish Central Bank, who both tolerate it since it makes their statistics look good, even though it is a bit fraudulent.
A property owner not paying mortgage debts (can be home or buy-to-let) agrees with the bank to put the property up for sale voluntarily. In the meantime the bank lets them continue to live there (or keep the buy-to-let) but they obviously have no incentive to even try to pay the mortgage. So it becomes a free-rent period of uncertain duration. The property owner has every incentive to put the price as high as it conceivably can go, and accept nothing less. Meanwhile the bank manager knows roughly what is going on but for them this is also a winner since they get to call it an “accepted resolution plan” in their targets with the Irish Central Bank. Even though it is actually just a sham solution the bank gets to call it a solution. The bank loses little or nothing relative to alternatives since the repossession route is so extremely long and costly for them it cannot be worse to just leave it on the pretend market.
The Irish Central Bank also goes along with it since it makes its statistics look better as well – fewer active arrears cases this is now “in resolution”. So everyone along the chain is being dishonest and everyone is happy with the situation. An Irish solution to an Irish problem!
Not so good for any suckers who think that the property is actually for sale and the price is reflective of good value. It is designed to be a rip-off price, or not even for sale at any price.
I think your wrong to call it a scam. Its a perfectly economically rational response. I know a few BTL landlords who having followed this strategy achieved the following:
Built up a considerable cash balance, enabling restructuring/clearing of small debts (Credit Cards, Car Car Loans, Personal Loans, HP etc). The elimination of these small debts improved the BTL Landlords ability to service the debt
Saw out the collapse in rents, and are now seeing a pick up in income
Benefited from a recovery in the capital value of the property
Forced their bank to see sense, and in all case that I know,achieved a better result than foreclosure in 2011 in a forced sale at very low values
The bank only had to forgive a small amount of interest, and in no case that I know did they forgive any of the capital.
The bank now has a performing loan, the BTL Landlord has a cash-flow positive asset, and everybody is happy.
Banks panic, bankers are not business people, and it helps nobody when they do panic.
I have looked at a small number of pretend-for-sale properties not knowing that it was basically a pretend-for-sale and you feel a bit ripped off when you figure it out afterwards. I agree with you it works really well for the property owner as a tactic, but it is deception. Maybe “scam” is the wrong word – be aware of it pinsters since it is a source of deception. It is not illegal – lying and fooling people is not illegal in Ireland, and in many circumstances like these it is actively encouraged by the authorities. So perhaps wrong to call it a scam.
What kind of properties have you been stung on? What kind of locations? What kind of tactics are vendors using?
How is the EA kept on board? There’s nothing in it for them and presumably after a while they would just give up on a vendor who is really not one. There’s plenty of real work for EAs these days…
I tend to keep myself to myself in terms of personal interactions sorry about being vague. Talk to your favourite EA. EAs put less time and energy into these properties relative to others on their books but yes I think that they can get burned too. Of course the EA is hoping that a half-hearted or completely false “sale” strategy will evolve into a sincere sale attempt and then they have the business locked up. There is still a real shortage of property on EA books so a property that is fake for sale can be slightly better than none. But they can get burned too.
The bank only has a performing loan as they have effectively given the landlord a load of free money.
The loan is probably then restructured resulting in another write off of debt.
Fortunately, mortgage payers and the taxpayer can fund all of this as otherwise the system would collapse very quickly
Somewhat related to this issue is this story on boards. A Dublin EA firm told a couple that their offer on a house was accepted and got them to market their own house with them for a quick sale so they could buy the house they were now sale agreed on. Turned out after several months that numerous bidders were all ‘sale agreed’ on the same house, as apparently the EA told every bidder with a house to sell that their offer was accepted so they could market their house. boards.ie/vbulletin/showpost … stcount=53
In the cases I am aware of there was no debt write off and only a small amount of interest forbearance. In those cases it was a UK bank, so thank the British Taxpayer (who paid nearly as much as the Irish Government for the collapse). The alterative was massive writes offs, and proable bankrupcy for the indivduals concerned.
BTW I am not and never will be a BTL landlord, and own no property at the moment.
Thanks for the link - very interesting personal experience from the perspective of the writer. He notes “I’d conservatively estimate that at least 50-70% of all homes advertised in 400k region in my area are simply there to hold off banks.” I think (do not know) that it is less than that in most situations (specific price range/area) so it depends upon the micro-market. But definitely a noticeable phenomenon and all the EAs seem aware of it.
Remember that to manipulate the market, you don’t merely have to reduce the stock for sale, you can simply slow transactions to a crawl, frustrate buyers at every turn and thus make them even more desperate to secure the limited houses that actually are for sale.
I am just speculating but maybe the banks know that fake-for-sale properties help to keep actual sales prices up via this type of market manipulation effect. That is another angle which makes it seem nasty and deceptive to me as a business practice. The bank, the EA, and especially the property owner are in it together and are deceiving people (perhaps including each other). A bit sleazy and nasty in my opinion, but not illegal.
