Revolving Deposit Mortgage Fraud

Revolving Deposit Morgage Fraud (RDMF) hit the headlines recently as a result of accusations made against Michelle Thomson MP, but what is it exactly?

Sometimes also referred to as a Back to Back Property Transaction, RDMF is essentially creating a deposit that does not exist. In the event that there is a substantial difference between the price paid for the property and the agreed valuation of that same property, then there is the potential to create funds which do not exist by fooling the lender into thinking that the price paid for the property was actually the valuation price rather than the actual transaction price.

If for example I want to buy a property that has a valuation of £100,000 and the vendor is willing to accept £80,000 then I can simply advise the lender that the price being paid is £100,000. The lender, thinking I have put up £20,000 myself then gives me £80,000 and I have thus now borrowed 100% of what I need to purchase the property. There is a problem however. mortgage lenders will only lend on whichever is the lower - the valuation of the property or the actual price paid. Where this is not declared openly it represents fraud and is therefore illegal. Where there is the potential for money to be made in a "great property deal" then professional practice can become compromised and desperate sellers can help to facilitate a nil deposit property transaction without realising it.   

RDMF may include multiple connected parties and considerable complexity in order to try and keep it under the radar and confuse the audit trail. A sivere downturn in business during the recession and personal financial survival may explain why some would choose such a high risk - high stress path. RDMF requires a very definite willingness to disregard legal process and hide important information. Not many people are up for that - thank goodness!


Ewan Foreman



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