“Bridging Loan borrowers sucked into the MFS Vortex” (The Times)

Our Bridging Finance Litigation client, Dr Elizabeth Donald, a client in our bridging finance litigation practice represented by solicitor advocate Jaron Dosanjh, told The Times that the collapse of MFS has been a “nightmare” for her personal property portfolio. While major institutions such as Barclays, Santander and Wells Fargo are reported to be exposed to the Mayfair-based lender’s failure, less attention has been given to the significant impact on individual borrowers – an issue now coming under increasing scrutiny as reported by James Hurley, Assistant Business Editor, The Times Newspaper.

With at least £1.3 billion estimated to be missing from a £2.3 billion loan book, the scandal at Market Financial Solutions may become one of the UK’s largest alleged Ponzi-style frauds.

Institutions, including Barclays, Elliott Management, Wells Fargo, Castlelake and Santander, are thought to be the primary victims of the failure of the Mayfair-based mortgage lender. Yet individuals are finding they are caught up in the fallout, too.

Elizabeth Donald, a GP based near Stratford-upon-Avon, has recently discovered she is exposed to MFS’s collapse and says the experience has been “an absolute nightmare for me and my family”.

She is currently pleading with liquidators of a collapsed part of the MFS group to intervene to prevent foreclosure on her family home and her small property portfolio after being told receivers have been appointed.

“My family home is now under threat of being sold by receivers appointed on behalf of lenders who are themselves the subject of a fraud investigation,” she said.

Donald, 52, is a customer of Black & White Bridging, based in Wick, near Bristol. It is a provider of bridging finance products for property developers. Black & White is one of several bridging finance providers that have found themselves caught up in the failure of MFS because they originated loans for Twinwin, which is linked to MFS. There is no suggestion of wrongdoing by Black & White and it is not under investigation.

Twinwin is one of more than 200 companies linked to MFS that is now in insolvency proceedings. Its provisional liquidators, from FRP, say Twinwin played an important role in the alleged lending scam at MFS and that it was used to “siphon off” money lent by institutions.

MFS, a provider of mortgage and bridging finance, fell into administration in February after a High Court judge said insolvency practitioners needed to investigate claims of fraud. Practitioners from Alix Partners, appointed over the MFS entity at the heart of the group, have claimed there is “compelling evidence of serious financial mismanagement” at the group.

It is feared certain loans may be entirely unsecured and therefore irrecoverable because of problems created by security having allegedly been granted over the same property in favour of two or more lenders, a practice dubbed “double pledging”.

The loan provider was alleged to have been under the “close and personal control” of Paresh Raja, its founder and chief executive, according to Alix. Raja, who is in Dubai, is the subject of a £1.3 billion global asset freezing order and travel ban. On Friday the City regulator, which oversaw MFS under money laundering and terrorist financing rules, launched an investigation into its collapse.

An analysis of filings by The Times shows that along with Donald, Twinwin borrowers include a company that supports children with special needs, a dementia-specialist care home and a provider of retirement housing.

At first glance Twinwin does not appear to be part of the MFS group. Its controlling shareholder is listed as Khemanand Hurhangee, 53. However, FRP have alleged in court filings that Hurhangee was a shadow director on behalf of Raja, who purportedly used him to “perpetrate fraudulent wrongdoing”.

The advisory firm said it was unclear what “legitimate business” Twinwin had other than to “siphon off” money from MFS entities that housed money from institutions. It believes the actions of Twinwin are “dishonest rather than incompetent”.

Twinwin is alleged to have acted without authorisation or disclosure when it sat between borrowers and MFS lending entities funded by institutions including Barclays. It appears to have taken unauthorised fees and interest charges, according to FRP.

Raja declined to comment. Hurhangee could not be reached for comment.

Sriharans Solicitors, which is named on certain Twinwin loan documentation, purportedly told administrators that loan agreements apparently certified by them were “forged”. Sriharans declined to comment.

Gunnercooke, another law firm, purportedly certified many of Twinwin’s loan documents including the loan to Donald. Its solicitor Stavros Theophilou is believed to have called into question the veracity of certain Twinwin filings Gunnercooke is named on. Theophilou has been involved in communications over foreclosing on Donald, emails appear to show. Gunnercooke declined to comment.

Many of the certified Twinwin charge documents examined by this newspaper include irregularities, including not having been signed by purported lenders, nor witnessed by a third party.

Hurhangee, an accountant, has 145 current directorships and he is the controlling shareholder of 124 businesses, filings show. Many are alleged to be connected to Raja and own properties worth more than £200 million. Insolvency practitioners have claimed he lives in a modest family home in the London suburbs that has a mortgage on it. Filings reviewed by this newspaper appear to support this.

Hurhangee is also listed as the beneficial owner of London residences of Raja, his ex-wife and adult children.

As well as being named as the controlling shareholder of Twinwin, which was financed by MFS entities, he is also a director of companies in the Magus Accounting group, which provided accounting services to MFS. In a further apparent conflict of interest, he was also a director of property companies which took loans from MFS. 

What this all means for legitimate borrowers with loans financed by Twinwin remains to be seen. FRP is understood to be in contact with bridging lenders and their borrowers who are caught up in the scandal.

Donald says the situation is both horrifying and absurd. With more than one lending entity registered against her properties on charging documents, she says it is not immediately clear who she should be paying back to get out of the tangle. “There needs to be a freeze while all this is investigated,” she said.

Jaron Dosanjh, solicitor at Lexlaw, which is representing Dr Donald, said other Twinwin borrowers should “first, check the Land Registry and obtain official copies of your title – look carefully at the Charges Register for any entries you did not consent to. Second, confirm whether your lender is authorised by the FCA. Third, review the default interest provisions; if the rate far exceeds the contractual rate, it may constitute an unenforceable penalty. Finally, if your lender is connected with any company currently under investigation, take immediate legal advice. Do not wait until receivers are appointed or your property is sold – the law does offer protection, but timing and expert advice are critical.”

Martyn Smith, chief executive of Bath and West Finance, the owner of Black & White, said his company had a loan arrangement with Twinwin, which was “facilitated and operated by MFS”.

Twinwin advanced loans originated by Black & White, he said, and his firm was not privy to the arrangement which saw the loans managed by MFS.

He said the Twinwin loan book represented about 8 per cent of the firm’s loan book and that Black & White was in the process of establishing the effect, if any, of the collapse of MFS on Twinwin and on its commercial relationship with Twinwin.

Bath and West declined to answer several questions about its dealings with Twinwin and did not comment on the case of Donald.

Read more on this topic: UK Bridging Loans: Fast Cash for Significant Risk?