CROYDON Council offered a £150 "finder's fee" to a Christian middleman for his help in finding landlords outside the borough who would take homeless families.
Council officer Simon Wadsworth discussed a "pilot project" with Ron Striebig, whereby he would open doors with landlords before passing their details to the council to finalise.
Mr Wadsworth hoped Mr Striebig could help promote council schemes and spread the message about homelessness, according to an e-mail on January 16.
He was also to "break down misperceptions that people on welfare benefits are feckless, work-shy individuals," wrote Mr Wadsworth.
The pair discussed the aborted project after Mr Striebig visited Gilroy Court Hotel, in Thornton Heath, where the council temporarily houses homeless families.
Visiting with his church, Croydon's St Mary Magdalene, Mr Striebig says he was shocked by what he saw in the hotel and contacted Mr Wadsworth to help.
He said: "I spoke to about four families there and started to think 'What is this all about?' I was driven by my own religious feelings to do something."
After the pair's discussion, Mr Striebig spent weeks contacting agents and landlords, mainly in Eastbourne and Folkestone, with little effect.
He said: "I have contacted 80 agents and one has shown an interest. They are all private landlords, and they don't like people on housing benefit."
The "finder's fee" was to be paid by the council to Mr Striebig's company Onslow College Housing (OCH) for each property referred which became available.
Mr Wadsworth said the £150 was for "reasonable expenses" incurred by OCH, and to support those "in housing need" or moving to accommodation.
But Mr Striebig says he stopped his side of the bargain last week after becoming angry with the council over its actions with some families, and the bureaucracy that he felt hampered solutions.
Member for housing Dudley Mead told Tuesday's cabinet meeting that the council was making progress towards re-housing families living in Gilroy Court, with the waiting list reduced from 180 to 85.
A Croydon Council spokesman said the authority "never entered into any formal agreement" with Mr Striebig,
He added the council offers two schemes to private landlords aimed at taking on tenants receiving benefits; Croylease and Croybond.
The spokesman said: "Croybond offers a one-off incentive payment and one month's rent in advance; and a bond of six weeks.
"Croylease is targeted at landlords with a fewer number of properties, providing a guaranteed rental income for the next five years; full management service; and no risk of void period."