Mortgage and property fraud have increased by 50% in the past year, according to a study by information services company Experian. These cases have been focused on un-mortgaged properties with absent owners and based primarily in the London area.
They highlight the need for solicitors and property professionals to be extra vigilant about identifying property owners in order to prevent fraud.
In a recent case of Purrunsing v A’Court & anor [2016], the property involved was unoccupied and of high value. The fraudster attempted to sell the property and fast completion was requested.
The alternative address for the owner was shown at the Land Registry and no explanation was sought in respect of this from the fraudster. The fraudster had informed his solicitors that he worked abroad and had limited knowledge of the property and works carried out to it.
The money for the sale was transferred to the buyer’s solicitors, held to order and released to the fraudster’s overseas bank account before the completion took place.
Identifying the seller
In this case, the solicitors on both sides were held accountable for failing to identify the owner. The seller’s solicitors had failed to establish a link between the fraudster and the property.
The buyer’s solicitor was also under professional obligation to undertake a risk-based due diligence, under the Money Laundering Regulations 2007 and the Law Society’s Conveyancing Handbook and Property and Registration Fraud Practice Note, and had not attempted to do so.
It was decided that the actual completion did not take place and thus there had been a breach of trust. The firms on both sides, in the court’s opinion, acted unreasonably and had not assessed whether the transaction was in fact bona fide. More importantly, they failed to establish whether the actual fraudster was in fact the owner of the property.
Buyers’ solicitors should also remember the importance of checking searches by priority carefully. In this instance, the buyer’s solicitors relied upon the Office Copy Entries provided by the seller’s solicitor, which did not in fact show adverse entries which has been entered on the title.
By mistake, the solicitor did not consider the results of their priority search before completion, which would have shown these entries. Had they done so, they may have been alerted to the suspicious features of the transaction and might have been able to identify the fraud.
Steps to prevent fraud for individuals
The individual’s interest can be protected by registering a Form ‘L’ restriction on the title which can act as an absolute bar against a disposition, or can state conditions which need to be fulfilled before a disposition can be registered.
The restriction prevents the owner from disposing of the property without providing a certificate to say that the requirement has been complied with. This will enable the Land Registry to stop registering a sale or mortgage on a property unless such a certificate is provided.
Steps to prevent fraud for professionals
A number of practical steps can be taken by professionals operating in the residential property sector to try to minimise the possibility of this type of fraud succeeding:
- Original identification or certified copy of documents should be obtained.
- Signatures should always be checked and any discrepancies should be questioned.
- Make enquiries if you feel there are suspicious features of a transaction, i.e. a quick sale or the owner lives abroad.
- Be particularly cautious in relation to any transaction where the property is unmortgaged and/or where the owner is not in occupation.
- All searches should be considered carefully. Solicitors acting for purchasers must satisfy themselves that the firm of solicitors acting on behalf of the vendor have carried out necessary due diligence on their client.
- Solicitors acting for vendors should be cautious of any requests to distribute completion monies to numerous bank accounts, bank accounts not in the name of their client and in particular where those accounts are held with overseas banks.
Nelsons has a specialist team of residential property experts. For more information or to speak to a member of our team, please contact us via our online form or telephone 0800 024 1976.