Property is big business, and it’s getting bigger. Successive property booms, the increasing wealth consolidated in the South East, and the introduction of government schemes such as ‘Right to Buy’ have fostered a market ripe in opportunities for investment, and with it, fraud. Property fraud, in itself, is not a new thing. However the obstacles for yesterday’s fraudster are different to those obstructing today’s. Worryingly, it appears that today’s fraudster might actually have it easier…
What’s changed?
The conveyancing process no longer requires sight of original deeds to proceed with a property transaction. Once upon a time, a fraudster would have had to forge land certificates and title deeds in efforts to con others into believing that they had ownership of a property. If the fraudster was successful, the property would then be ‘sold’ or used to raise a mortgage, and they would simply walk away with the proceeds, leaving the true owners to deal with the consequences. Today’s fraudster must adopt similar methods of deception to their predecessor, as they must still borrow the identity of a true property owner. But the fact that they don’t need to present forged title deeds, arguably, makes it easier for them.
Supporting this is the fact that instances of attempted property fraud have increased in both value and number, to such an extent that the Land Registry initiated a service aimed at identifying potential fraudulent attacks on registered properties. To date, this service has prevented frauds on 204 applications, representing a total property value of over £92m.
Who is at risk?
Although it is the buying and selling public and investors who are chiefly at risk from the fraudsters’ methods, they are not the only ones who stand to lose out. The most recent case to hit the headlines shook conveyancing solicitors, when they heard that the court ordered City firm Mishcon de Reya to reimburse £1m to its client after they were tricked into paying out to a tenant posing as the owner of a London property, even after the firm ostensibly undertook anti-money laundering and client identification procedures.
With or without adequate procedures and checks, the property in question should have raised alarm bells with the City firm as it was of high value, it was mortgage-free, and it was tenanted, all of which are characteristics that the Land Registry considers to put a property at increased risk of fraud. Other properties at increased risk are those that are empty, have the only contact address as the property itself, or have owners living abroad.
What can be done?
PROPERTY OWNERS
For property owners, the Land Registry advocates a number of safety measures to guard against property fraud, the first of which is to ensure that the property is registered. Having the property registered means that, should the owner fall victim to property fraud, they would stand a good chance of being compensated for financial loss.
The Land Registry also offers a free Property Alert service, which enables property owners to monitor up to 10 registered properties in England and Wales. An email alert is issued every time an official search or application is received against one of the monitored properties; for example, if someone tries to take out a mortgage on the property. Although such a system relies on the response of the property owner and is thus ‘reactive’ rather than pre-emptive, early detection can prevent a fraudulent attempt, which potentially could have resulted in a loss of money. This is demonstrated by the success of the service to date.
For those who feel their property might be at particular risk, the Land Registry encourages a restriction to be entered on their property. A restriction would require any solicitor or conveyancer to confirm that they are satisfied that the person selling or mortgaging the property is the true owner.
PROPERTY DEVELOPERS & BUY-TO-LET
Property developers and buy-to-let landlords may be at increased risk of property fraud given that properties are frequently untenanted, there may be many properties to monitor and they themselves may live abroad. In addition to following the Land Registry advice for individuals, investors may wish to consider making more thorough checks into a property’s history, and even give thought to hiring a P.I. to investigate the property and its seller, prior to making a substantial investment.
LANDLORDS
As solicitor firms seek to undercut their conveyancing competitors, there may be a temptation to overlook proper anti-money laundering procedures and identity checks on their new clients. However, doing so can cause financial and reputational damage, as was proven in the High Court last year in the case of A’Court & Co and House Owners Conveyancers Limited. It is therefore imperative that solicitors undergo compliant and robust anti-money laundering procedures and, crucially, obtain sufficient documentation linking the seller to the property. Some solicitors may even wish to consider whether to engage unfamiliar clients who they have never seen face to face.
Solicitors should also encourage their clients to sign up for the Land Registry service. It can be set up on behalf of a client, though this is not advised by the Land Registry as the contact email address would be linked to the solicitor’s firm rather than to the buyer.
In general, solicitors must foster a ‘culture of vigilance’, ensuring that staff are adequately trained, that they remain aware of current methods of fraudsters and that they keep informed of recent property (and other) fraudulent attacks. Solicitors should be especially vigilant when dealing with properties identified by the Land Registry to be at particular risk, and also, as in the case of Mishcon de Reya, when the seller is in a rush to complete the transaction.
