POLICE investigating an alleged sell and rent back scam which has hit 2,000 struggling families in the region suspect it could be the largest fraud of its kind.

Northumbria Police are probing North East Property Buyers and Newcastle Home Loans after after a referral from the Financial Services Authority.

The Gateshead firms buy homes from people across the region who are struggling to pay their mortgages and allow them to rent them back.

However, the firms have allegedly defaulted on repayments which has led to hundreds of repossession orders.

On Thursday, police made five arrests on suspicion of money laundering and conspiracy to defraud.

It is understood those arrested include Grace and David Purdie, of Darras Hall, Northumberland, each a director of one of the companies.

Grace Purdie’s business partner, Michael Foster, of Houghton-le-Spring, Wearside, is also understood to have been arrested.

The investigation is continuing into the partners of Darlingtonbased David Oliver Estate Agents, including the Purdies’ son, Craig David Purdie.

Mr Purdie is a former appointed representative of Newcastle Home Loans. His business partner, Andrew Oliver Bellwood, was arrested on suspicion of money laundering, in March, after £34,000 was found in his home in Newton Aycliffe, County Durham.

Detective Chief Inspector Jim McAll, of Northumbria Police’s economic crime unit, said: “What is alleged is a very serious and complex fraud. If proven, and if it is on the scale alleged, it will probably be one of the biggest property frauds in the country.

“It is certainly the biggest one we have ever dealt with.”

Det Chief Insp McAll said the inquiry could take years as detectives search through thousands of documents connected with the companies’ mortgage deals.

As officers continue to investigate the criminal allegations, tenants facing repossession must fight to stay in their homes through the County Courts.

Kelly Bushby, housing specialist for Clark Willis Solicitors, in Darlington, said she was dealing with 20 clients in the area, but suspects there could be more.

She is preparing to fight repossessions using an as yet untested legal argument, and plans to instruct a leading barrister.

Mrs Bushby said: “We argue that tenants have an overriding interest and should therefore be allowed to stay in their homes.

Perhaps if they had been given an assured shorthold tenancy things would be different, but, usually, they have been told they could stay for ten years or even life.

“There is also a possibility of a negligence claim against the solicitors who handled the sales which could see the ownership of the property revert to the tenants as if the house was never sold.

“In either event, it will take time and I would advise anyone who thinks they could be affected to get in touch with us.”

Clark Willis has offered to represent clients through the first stages of the proceedings free.

For details, call 01325-745687.