Several months ago I wrote of the pitfalls of “sale and rent back” schemes. A Supreme Court decision last week in Scott v Southern Pacific Mortgages shone the spotlight once more on those schemes, and unfortunately the court would not come to the aid of the victims.

A sale and rent back agreement (SRB) typically involves an individual selling their home to a property company at less than its market value, with an agreement to remain in the property for a set time as a tenant. The scheme appealed to people in financial difficulties and was sold as a good way of letting homeowners clear mortgages or other debts and remain in their homes.

In 2005 a Mrs Scott sold her home at a considerable undervalue to an investor, Ms Wilkinson, who was linked with a property firm called North East Property Buyers (NEPB).

Mrs Scott gave up a significant portion of the sale proceeds in return for a promise that she could stay as a tenant at a low rent for life, with her son inheriting the tenancy on her death. Ms Wilkinson’s purchase was funded by a buy-to-let mortgage from Southern Pacific, which was not aware of the arrangements with the Scotts. So the tenancy agreement was in breach of the terms of the mortgage. Most mortgage agreements prohibit letting the property and no mortgage company would contemplate a letting for life. Ms Wilkinson then got into financial difficulties.

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When mortgage payments stopped Southern Pacific looked to repossess the property, at which time the dispute arose over whether Mrs Scott had an interest in the property that enabled her to live there.

She was, of course, completely innocent. She was now being told by the mortgage company that because the buyer had defaulted on the mortgage, she and her son would have to leave, adding insult to injury.

Again the court had to consider a balancing act. The mortgage company was also innocent. The only way it could recover its loan to the buyer was by selling the property. The seller had been deceived or been made promises the buyer could not keep.

It was argued that Mrs Scott entered into the contract under “undue influence” and should be able to cancel it, or that the bank’s interest should be secondary to hers.

The court did not agree. It agreed this was a harsh result but said the seller’s remedy would be against the buyer.

As in many cases, not only was the homeowner probably the victim of a fraud, but probably also victims of unprofessional and dishonest behaviour by solicitors appointed to act for them.

Fortunately, the seller may have a claim for damages for negligence against the solicitors.

By 2008 the Office of Fair Trading estimated there were more than 50,000 people in SRB schemes, many of whom were seriously vulnerable to eviction.

Fortunately, these transactions appear to be a thing of the past. Reforms to SRB schemes came into force on April 26, following a finding by the Financial Services Authority that the market needed to be regulated, but this of course came too late for the appellants in this case and a large number of conjoined appeals waiting in the wings behind this appeal.