Mortgage fraud guidance

Common methods used by criminals when they commit mortgage fraud.

Mortgage fraud committed by individuals

People may commit mortgage fraud by giving false information to lenders to get a larger mortgage than they're entitled to. This can include misrepresenting:

• their identity
• their income
• their employment
• their debts
• sources of funds other than the mortgage
• the value of the property
• the price to be paid
• whether any payments have been or will be made directly between the seller and purchaser

Eventually a bank will foreclose on the property and find it in disrepair and worth less than the current mortgage and its arrears.

Use of non-bank lenders

Criminals may use property clubs to raise funds. These lenders, which focus on marketing investments to property investors, often have less safeguarding than institutional lenders.

Property clubs can be targeted especially in relation to overseas properties where the property is invented or an undeveloped piece of land.

Use of companies

Criminals may sell property with inflated value between related private companies.

Off-shore companies are increasingly used in this way. The property is sold several times within the group of companies before a lender is approached for an inflated mortgage.

Flipping

Flipping happens when criminals try to resell a property very quickly for an inflated price. It usually involves back-to-back sales of the property to limit the time between sales.

Back-to-back sales are when someone sells or remortgages a property immediately or soon after completing the purchase.

Equity release fraud

Equity release schemes allow people to sell their home, but to rent and occupy it. They’re given the option to buy their property back when they can afford to.

Criminal involvement may result in:

• the homeowner selling to an invented person or directly to a criminal
• a mortgage being taken out by the criminal for an inflated value
• the original loan being paid out by the lender, and the equity in the property taken by the criminal, who does not pay the mortgage
• the original homeowner eventually being evicted by the bank, as a tenant, having been unaware that no mortgage payments were made
• the original homeowner being unable to buy their home back, as the value of the mortgage is higher than the original mortgage

Application hijack

Criminals may intervene before completion by claiming they’re a new representative for the buyer in order to obtain the mortgage advance.

The criminal will usually pretend to be a solicitor or conveyancer, using fake or copied letterheads to write to the lender and give their own bank account details to receive the mortgage advance.

Re-mortgaging

Criminals may target re-mortgaging and re-financing.

They may use private funds to purchase a property, get external funding against it, then take the mortgage advance and disappear.

They may also pose as a property developer and seek bridging loans (short-term, high-interest loans) to cover buying several properties. These may be properties they previously used as part of a flipping scheme, which have been repossessed by the bank.

Claiming deceased estates

Criminals may try to pose as the heir of an estate, or as the deceased person themselves. In both cases they will seek a mortgage on equity in the property, then disappear with the funds.

Court orders for sale

Criminals may seek out the details of owners of unoccupied, boarded-up properties. They may then apply to the County Court for a judgment against the owner for a non-existent debt. They will not give the owner notice of the application. Once obtained, the judgement is converted into an order for sale.

The property is then sold either directly to the person claiming the debt or to one of their associates at an inflated price, often using criminal funds.

The criminal gets a mortgage on the property at an inflated price, then takes the advance without making any mortgage payments.

This section outlines some of the common warning signs of mortgage fraud. For additional details, see our practice note on mortgage fraud.

Be aware that criminal methods change often.

Use of professionals

Mortgage lenders often rely on other professionals, like solicitors, to carry out necessary checks on their behalf. Criminals may try to use you to mislead lenders and other professionals involved in a property transaction.

Criminals could involve you at the last possible moment, so it’s hard for you to do proper due diligence. For example, they might try to involve you at an advanced stage of a transaction by:

• asking you to complete a transaction by transferring the title after contracts have already been exchanged
• getting a lender who has already approved a loan to give you completed paperwork

Criminals may also:

• encourage you to alter the value of the property or provide otherwise misleading information
• encourage you to ignore your obligations in the UK Finance Handbook or Building Societies Association mortgage instruction  
• try to offer you more work, or more lucrative work, to discourage careful checks in a particular transaction
• try to recruit you into the fraud

See section 2.3.5 of our practice note on mortgage fraud

Identity and ownership

Warning signs of mortgage fraud around identity and ownership can include:

Client issues

• the client or property is located far from your firm, which does not usually deal with long-distance transactions
• the client does not seem interested in the property
• the client claims to have owned the property for many years but looks younger than you’d expect
• the client has owned the property for under six months but seems in a rush to sell again
• the client has plans for a sub-sale or back-to-back transactions
• the client has an unusually short credit history, suggesting it may be false
• the client knows little about the property, in spite of having owned it (on paper) for a long time
• the client does not usually invest on this scale and you do not know the source of their funds

Seller issues

• the seller is a private company or has recently bought the property from a private company

Property issues

• the property has a history of being resold quickly or having its mortgage settled quickly
• there's a County Court judgment against the property
• the land is transferred following a court order, but the mortgage is sought some time later

Transaction issues

• a party who isn’t involved in the transaction is paying your fees
• there has been a last-minute change of representative on the buyer or the seller side
• a transfer of title to land is requested for only a portion of the seller's property interests and that portion is not grouped together
• finance is sought after the property has been registered in the buyer’s name
• the other conveyancer or solicitor involved has an email address from a large-scale web provider, for example Outlook or Gmail

See section 3.1 of our practice note on mortgage fraud

Property value

Warning signs to look out for include:

• the property value has greatly increased over a short period of time, out of line with the market in the area
• the mortgage is for the full property value
• there's money left over from the mortgage after the purchase price has been paid, and you’re told to pay this money into an unknown account
• land has recently been transferred but no money changed hands, or the price was much less than the full market value or the value now stated
• the valuation or payment for chattels with the sale appears high

In some cases, the lender will not have been told about facts that might affect their decision. Be alert to signs that the lender does not know about:

• incentives, allowances or discounts provided by the seller or developer
• the deposit being paid by someone other than the purchaser
• the purchaser paying the deposit directly to a seller or developer

See section 3.2 of our practice note on mortgage fraud

To protect against mortgage fraud, you can:

• be alert to the warning signs of fraud
• verify who your client is and who benefits from the transaction
• make sure your client’s details match those on related mortgage documents and bank accounts
• check client details against the register of deaths or lists of known fraudsters
• search for any companies and relevant dates on the Companies House Register  
• carry out enhanced due diligence – see our anti-money laundering guidance chapter 4.12, especially if you have not met your client face to face

Ask questions

Consider all the information you have and ask questions of the company or individual you’re dealing with to better assess the risk of the retainer.

This will be especially necessary if there’s something unusual about your instructions, or you discover inconsistencies:

• in documents
• in emails
• when talking to your client
• during your research

Reliance

Although the regulations provide for relying on another party as part of customer due diligence, fraudsters may try to exploit these provisions. Be wary if you’re asked to use the reliance provisions under the Money Laundering Regulations to reduce your checks. Ask if the firm or individual you’re relying on is:

• regulated for anti-money laundering purposes  
• well established
• reputable
• able to give you the client due diligence material they have

Check details

If you think someone is pretending to be a solicitor or conveyancer, you can check their details using:

• Find a Solicitor  
• the Directory of Licensed Conveyancers  
• the Solicitors Regulation Authority’s records on 0370 606 2555

You can crosscheck details in documents and where the documents are going against other details you know to be correct.

If you’re acting for a buyer, you should not transfer funds to the seller's solicitors without contacting their firm and checking that the account details you’ve been given are accurate.

Complete documents

Make sure all relevant sections of documents are completed before your client signs them. This helps to prevent fraudulent information being added later.

Follow best practice when signing and exchanging documents

Record the property value

Find the net cash price to be paid, to comply with the UK Finance Mortgage Lenders’ Handbook, Building Societies Association (BSA) Mortgage Instructions, and Land Registry requirements.

State this amount in the:

• contract
• transfer documents
• mortgage instructions
• certificate of title to the lender
• Land Registry forms

If there are any discrepancies between the values in these documents, or you’re asked to enter a different value, you may need to tell the lender.

See part one of the UK Finance Mortgage Lender’s Handbook

See C3 of the BSA mortgage instructions

Stay alert to changes to the retainer

Stay alert to any changes that mean the purchase price is different from the price given to the lender, for example previously undisclosed allowances, incentives or discounts.

Lenders will reasonably expect to be told about changes, as these may affect:

• their decision to grant the mortgage
• the terms of granting the mortgage

See the UK Finance Mortgage Lender’s Handbook part two or the BSA mortgage instructions for more information.

Protecting the property owner

A property owner can protect against fraud by applying for a Form LL restriction on their property title.

This means that before any sale or change to the title, a conveyancer must sign a certificate saying they’re satisfied that the person dispensing with the property is the owner.

Read Land Registry’s guidance on standard form restrictions