Blitz on illegal home sales

A Lower Hutt company has been charged with buying and selling property without a licence. Photo / Janna Dixon

The Real Estate Agents Authority has laid charges against a Wellington property company for allegedly buying and selling property without a licence.

The action is part of a wider investigation by the authority into property investment groups and a crackdown on illegal trading.

Charges were laid in the Lower Hutt District Court before Christmas against Petone company Home Buyers and its director Francisca Forster. The first hearing is due in four weeks.

Section 141 of the Real Estate Agents Act 2008 says it is an offence to carry on the business of a real estate agent without being licensed.

The real estate industry watchdog has said there is an issue around how traders who offer investment properties to mum-and-dad investors fit within the legislation.

The variety of schemes broadly fall into two categories - finders, who aim to buy and sell a property within days under what is called a contemporaneous settlement, and traders, who take possession of an investment property then on-sell it, often with a guaranteed rental income stream.

One of the most high-profile investment schemes was Blue Chip, a complex web of entities that collapsed three years ago leaving thousands of small investors out of pocket. One of the problems with the scheme was that it didn't fall under any particular piece of legislation.

Home Buyers claims to buy houses from owners in tight situations. "We specialise in finding creative solutions to real estate problems that others won't touch," its website says. "We can pay all cash, take over your payments or lease-purchase your house immediately!"

On the other side of the equation, Home Buyers says it works with "buyers who we can move into the property quickly before they complete the tedious application and loan processing delays [sic]".

"Some need time to alleviate a shortage of down-payment or to solve credit issues."

After buyers move in it then works with lenders to get them "pre-qualified" for a loan.

If home owners have no mortgage, Home Buyers will pay them cash for their equity.

It has the "team players" to settle transactions quickly, including lawyers, lenders and mortgage brokers.

Blue Chip targeted cash-poor older homeowners, getting them to use the equity in their homes to buy investment properties. One of its hallmarks was that investors were encouraged to get legal advice from Blue Chip-friendly lawyers. Victims of the scheme have since brought successful legal action against several of those lawyers.

Property investment schemes are exempt from the Securities Act, and there is no requirement for operators to back up features of the schemes such as promises of lease-backs and rental guarantees.

It is also not clear whether such schemes are covered by the new financial adviser regulations.

The REAA says its investigations are ongoing.