Back to Basics: Don’t fall victim to fraud

Sophie Crompton and Katie Beddows look at measures that can be taken to prevent property fraud. Despite increased ID checks and Land Registry scrutiny, instances of property fraud continue to rise and pose an increasing threat to property owners. The potential consequences of property fraud have been in the news again recently after an investigation by the BBC’s You and Yours programme highlighted the case of Reverend Mike Hall. Hall, who had been away on business, returned to his home after receiving a call from his neighbour, to find it had been sold without his knowledge. The fraudulent seller obtained Hall’s driving licence and impersonated him as the owner in order to sell the property. Neither the solicitor acting for the fraudulent seller nor the solicitor for the buyers recognised the fraud and the transaction proceeded to legal completion. The property was transferred to the buyer and the fraudulent sellers received the sale proceeds, with the fraud only becoming apparent months later, once the legal title to the property had been registered in the buyer’s name. Fraud risk factors It is important to raise awareness of property fraud, to not only property owners but all those involved in the property transactions, to flag facts that might indicate the transaction is fraudulent. There are certain risk factors that make it easier for property fraud to be committed, including: unencumbered properties; tenanted properties; no restrictions on the registered title to comply with; elderly homeowners; vacant properties (absent owner/occupier); landlords/owners living overseas; unregistered properties; and high-value properties. Types of fraud Property fraud does not always begin with or is limited to the sale of a property. There are multiple ways in which property fraud can be committed. The lengths that criminals will go to in order to facilitate property fraud is underestimated and overlooked. Common elements of fraudulent activity include: stolen identity (buyer, seller, landlord, rental agent, lender, lawyers); and illegal possession of the property and/or access to the property. Some or all of the following matters can also be an indication of a potential fraud: when a quick sale is required; low-value properties without plausible reason; inflated sale price; and proceeds being transmitted abroad. It is common for fraudsters to begin by posing as a potential buyer to enable them to collect information on a property and a seller before they then actively seek to steal someone’s ID to facilitate the fraud. These criminals will even go so far as changing their names by deed poll to enable them to secure loans against property, as in the case of Laylah De Cruz and Dianne Moorcroft. Moorcroft changed her name by deed poll to match the name on the title register of a property they rented where the landlady had died. She applied for a mortgage of £1.2m, which was accepted, and then proceeded to spend the mortgage advance. By the time Moorcroft was arrested, all the money had been spent and the debt was never recovered, leaving the lender to absorb it. This is an example of mortgage fraud. Mortgage fraud Mortgage fraud can be committed in multiple ways, ranging from borrowers making a false claim on an application to secure lending to supplying false disclosures and documentation. Types of mortgage application fraud include: false income/employment (borrowers fabricating their source of income); scheme abuse (borrower concealing their intended use of the property); credit abuse (non-disclosure); deposit fraud (source of monies cannot be sustained); and property hijack (identity theft, disappearing with surplus funds). While this is very upsetting for the homeowner, we also need to consider the effect this has on the buyer (including their lost deposit funds) and the mortgage funds that have been lost. The consequences of property fraud on lenders can have a significant effect. Not only can it damage their reputation, but the financial loss they may suffer can be irrecoverable. It is therefore extremely important that if a lender is taking a charge over a property, their standard Form J restriction (along with their legal charge) is registered against the title of the property. This will assist in preventing people from posing as a property owner and disposing of the property, as the restriction will prevent the disposition unless the lender either provides consent or if their charge is redeemed. Either of these requirements would raise awareness of the proposed transaction with the actual owner, as the lender will likely require their consent before issuing a redemption statement or issue it to their borrower (the owner) directly. Fraud involving UK property does not just stop at sales and secured lending. Fraud also extends into illegal letting and subletting that cause detrimental effects to both the property owners and their lenders. It is always advisable to use ID and referencing agencies to ensure potential tenants are who they say they are, are likely to use the property for its intended purpose and by themselves, and also meet the rental payments on time. Mitigating the risk of fraud When dealing with property transactions, all parties (not just the solicitors) need to be vigilant, especially when dealing with property sales and secured lending where any of the risk factors highlighted in this article apply. Lawyers, mortgage brokers, estate agents and lenders have a duty of care to do so. Thorough checking of ID, company registration information or use of digital ID checking systems should be conducted before any work is carried out, including checking of title registers. Questions to consider are: Is the owner old enough to have been able to buy the property when it was last sold? Do any of the “red-flag events” previously listed apply at any stage of the transaction? Is the client reluctant to answer questions or communicate? Are any changes made during the course of the transaction to the bank accounts into which payments are to be made? Have the account details been independently verified? Also remember that solicitors and conveyancers are liable under the Fraud Act 2006 if their client commits mortgage fraud. Property owners have the ability to protect their interests by registering for the Property Alert service that was launched by the Land Registry in 2016. This is a free service available to all property owners. An owner simply provides the Land Registry with their contact details and requests to be alerted if a particular event occurs. For example, when any major application is lodged against the title to their property, an alert is automatically sent to those registered to receive communications from HM Land Registry and contains instructions of what to do if any information is not recognised. An overwhelming majority of property owners are not signed up to this service. A major benefit to the service is that family members can also sign up to receive these alerts. So if a member of a family is particularly vulnerable, their family can help to monitor any applications made in relation to the property and reduce the risk of fraud being perpetrated against them. Brabners has asked the Land Registry if it has any plans to allow solicitors and conveyancers to register for the Property Alert on behalf of clients as part of the registration process. We await comment. Another preventative measure available to property owners is the ability to apply to the Land Registry for a Form LL restriction to be registered against the title of a property. This restriction requires that any application for disposition out of the registered title be accompanied by a certificate from a conveyancer to certify that the person who executed the document submitted for registration as disponor is the same person as the registered proprietor. Lawyers have the ability to do this on behalf of their clients at either the post-completion stage of a transaction or as a stand-alone application at a later date. This should be recommended to clients, as it provides additional comfort that the identity of the disponor has been reviewed, investigated and verified by their solicitor. Furthermore, it is worthwhile noting that the Land Registry allows property owners to provide up to three different addresses for service (this can be a combination of postal addresses and/or e-mail addresses). This again is a facility which should be encouraged as it provides the Land Registry with three means of contacting a property owner in the event that it suspects unusual activity. The severity of property fraud is highlighted by the fact that the Land Registry had to pay out around £3.5m in compensation last year alone, which brings the total compensation paid out since 2016 to £12.5m. However, it is worth mentioning that HM Land Registry has managed to prevent close to 200 attempts at property fraud, which would have totalled more than £115m. Awareness of the subject matter is therefore extremely important. Property fraud will not be eradicated in a short time, but there are steps that we can all take to try to mitigate the risks. Therefore consider including the following steps when dealing with property transactions: Advising clients to sign up to the Land Registry – Property Alert service. Advising clients to apply to the Land Registry for a fraud restriction to be registered against the legal title of your property. Providing the Land Registry with three contact addresses, a mixture of both e-mail addresses and postal addresses on registrations. Estate agents, solicitors, mortgage brokers and lenders can undertake enhanced anti-money laundering due diligence when first being instructed by a client. The use of digital ID verification is becoming increasingly popular and safeguarding the process. Solicitors have the ability and should be encouraged to carry out due diligence on other professionals such as solicitors and mortgage brokers that they deal with throughout a transaction. Tools such as Lawyer Checker and the Financial Conduct Authority assist with this. Sophie Crompton is a solicitor in the real estate department and Katie Beddows is the post-completion team leader at Brabners   Photo by REX/Shutterstock