Real estate scam exposed

Former Barfoot & Thompson agent Philip Niall (left) appears before the licensing board yesterday. Photo / Brett Phibbs

One of the country's most elaborate property scams was laid before an official inquiry yesterday when the Real Estate Institute aired details of a mortgage-ramping scheme.

The Serious Fraud Office and Inland Revenue have investigated the web of deals in which agents traded properties among themselves to make potentially big rewards, inducing banks to give them more than the properties were worth.

Bank of New Zealand, ANZ and Westpac were all named as easy and sometimes "familiar" sources of loans to the agents, who stood to make big gains from last year's booming Auckland housing market.

The banks are said to have mostly failed to question the deals and dispensed with the usual precaution of requiring a valuation because applications came to them from Barfoot & Thompson agents on that firm's trusted letterhead.

At the all-day hearing in Newmarket yesterday, the Real Estate Agents Licensing Board heard the institute's case against three agents from Barfoot's Mt Albert office: Philip Niall and two others who have been subsequently granted name suppression.

All are temporarily suspended as salespeople but the institute wants them permanently barred as agents.

Only Mr Niall appeared to defend himself, and the case continues today.

Barfoots terminated Mr Niall and another agent's contract when it discovered the scam. The third agent had already left the agency.

The institute said the agents would sell properties to one another or to friends at vastly increased values, convincing the banks to lend more than the properties were worth.

The institute said the agents quickly flicked properties among themselves without telling bosses. Other agents, friends and associates were offered thousands of dollars to put names on documents.

"[The agents], personally or using corporate entitles, would purchase property that was potentially subdivisible and capable of development," said the institute's lawyer, Steve Haszard of the Crown Solicitor's office, who described this as a scam.

"To fund that subdivision and development, [the agents] would finance the properties for more than their actual worth by means of mortgage ramping," Mr Haszard said.

"[the agents] carried out their mortgage-ramping scheme by buying and selling a property several times among related individuals and paid associates.

"For each sale, [the agents] would increase the purchase price of the property to achieve a grossly inflated purchase price.

"This would provide them with an ability to seek a greater amount of money from the mortgagee: ultimately, being less than the loan.

"[The agents] had familiar contacts at Bank of New Zealand and Westpac. They were aware those would and could approve the mortgage without requiring a registered valuation of the property so long as the sale and purchase of the property was listed and sold using a recognised agency."

Mr Niall described how he was offered $5000 for putting his name on documents. He earned $120,000 last year but voluntarily declared himself bankrupt in February.

"I accept I've been sloppy and foolish and stupid but listening to everyone else's evidence, I'm not the only one," he said. "I'm not being a crybaby about it. I want to defend myself and what's left of my reputation. I wasn't doing this for greed. I was not the instigator. It was a favour."

Mr Haszard will sum up this morning and the board is expected to reserve its decision.

THE DEALS

The deals were wrong because:

* The agents were meant to be involved in other people's property sales, not their own - a conflict of interest.

* If buying and selling properties themselves, they were meant to tell their bosses. They didn't always do this.

* The agents claimed tax refunds on inflated values, allowing them to get more GST back.

* They altered documents to enhance their case and chances of making money.

* They tricked the banks into believing transactions were `arms length' when the sales were to close associates.

* They offered $5000 to $20,000 to get others to put their names on property deals.

* They told associates to put their names on purchase agreements, promising to make all the repayments - which they did not do.