In recent years, efforts to prevent mortgage fraud have focused
on the risks posed by potential buyers, as they were obtaining the
mortgage. However, it increasingly appears that the vendor side of
the transaction is not without its own mortgage fraud risks.
There are two methodologies which are currently being adapted by
fraudsters to target weaknesses around the vendor's role in
the process. These are:
- application hijack
- vendor and buyer collusion
Application hijack
In this range of methodologies there is a genuine owner of a
property, and in some cases they may even be looking to sell and
will have secured the services of a genuine and honest
solicitor.
A fraudster then sees the property and decides they will
represent themselves as the genuine owner and take advantage of the
sale. They may seek to instruct a genuine and honest solicitor and
deceive them as to their true identity, or they will have someone
else within the crime gang hold themselves out as a solicitor. It
is not yet clear how they manage to make contact with the genuine
buyer and their solicitor, but corrupted mortgage brokers or estate
agents may play a role. The sale is agreed, the contracts are
exchanged, and the purchase price is sent to the vendor's
solicitor.
Unfortunately the purchase monies either in whole or part
disappear, any existing mortgage may not be paid off, the lender
finds that they may not be able to enforce their charge over the
property and the true owner of the property now has to take action
to prove that the property has not been sold.
While organised crime groups may use this methodology, it has
also been attempted by tenants, squatters, or opportunistic
criminals seeking to exploit vacant properties. See for example
this edition's Launderers in the news feature.
Vendor and buyer collusion
In this methodology there could again be a genuine owner of the
property who has no idea of the conduct taking place. Alternatively
the property may be owned by the fraudster, who has previously used
the proceeds of other crime to purchase the property in a fake
name.
Again, genuine and honest solicitors could be approached with
the hope that they will not ask too many questions as to identity
of the client or the transaction, or fake solicitors could be
created to represent the vendor. There will be two or more
potential buyers for the property, all of whom are part of the
conspiracy, all of whom instruct different solicitors and provide
fake identity information. They approach lenders for mortgage
offers and then each have their offer accepted by the vendor, with
none of the lenders or the genuine solicitors being alert to the
fact that other offers have also been 'accepted'. The
mortgage funds are released, completion takes place concurrently
and the multiple mortgage advances disappear. The lenders each find
out that they do not have the security they thought they had over
the property and the solicitors acting for the purchasers find that
they cannot contact their clients.
Again, this methodology will often be used to target properties
that have been left vacant or belonged to individuals who are
recently deceased.
How do you avoid getting caught up in the scams?
Know your client
As a vendor solicitor, take the time to get to know your client.
This is not just about photocopying their passport. Consider
whether the amount of time the property has been registered to them
is consistent with their age and with what they have told you.
If you conduct an e-verification check, does the client have a
listing on the death's register? Do the years they are listed
on the electoral register at the property match what they have told
you and with the land registry? Discrepancies may indicate that
actually the owner is a landlord and the property is tenanted, in
which case you need to think about who are you actually dealing
with. Or they may indicate that the client is simply an
imposter.
Check your web presence
All solicitors should have someone in the office undertake
internet searches against the firm's name on a regular basis
to check that their website has not been cloned or they are not
otherwise being impersonated. Such checks are a necessary part of
protecting yourself in an electronic age, but can also be useful to
see whether others are commenting on your services, either
positively or negatively in electronic media. If you do find that
your website has been cloned or your firm is being impersonated,
you should advise the SRA, your insurer and any lenders on whose
panels you act, to help mitigate any financial and reputational
loss. You should also consider making a report to Action Fraud.
Know the other side
As a solicitor acting for the purchaser, the requirement to know
your client and be alert to the possibility of fake identities
equally applies. Taking the time to check who is on the other side
is also important. Where a person is seeking to impersonate a real
solicitor, they will have to change some of the contact details
from the real firm in order to actually receive the correspondence
you are providing. So when you check a firm on the Law Society's
Find a solicitor search, don't just check the name of the
firm. Look also at the address, the phone number, the website and
the email format.
Consider the names of the regulated principles where they appear
and look to see if the individual you are dealing with is also
listed either on Find a solicitor or on the firm's website.
If they are not, or if you have reason to be concerned about the
transaction, consider actually contacting the firm's head
office and asking if the person you are dealing with actually works
there and if they do, then ask to speak with them about the
transaction to ensure that application hijack has not occurred.
And if all else fails
I am sometimes asked, what happens if I have taken all these
checks and a fraud still happens? It is important to remember that
sophisticated fraudsters may still get past the most vigilant of
checks.
Make sure you have checked identity information and asked
questions to verify that information, document both the questions
asked and the answers provided. This will help to answer any
allegations of criminal complicity, recklessness or professional
negligence. If it becomes apparent that a fraud has occurred, seek
to mitigate the damage as quickly as possible. Contact your insurer
and consider whether there is a need to make a report about the
fraud to Action Fraud or about money laundering to the Serious
Organised Crime Agency.