Mortgage Fraud: recognising the risks and warning signs in practice

Conveyancing firms remain a top target for criminals. Some mortgage-related fraud is opportunistic while other fraudulent activity is highly organised. We look at a new Law Society practice note on mortgage fraud and the warning signs conveyancers and staff should look out for avoid liability.

The so-called ‘Friday afternoon’ fraud is now well-known within conveyancing firms, and knowledge goes a long way to help reduce the risk. As most readers will appreciated, criminals hijack genuine solicitor email accounts to contact a client asking them to transfer purchase funds to a fraudulent bank account. The client, who is undoubtedly expecting such an email (albeit genuine) from their solicitor, does what is requested – losing their money to the criminals in the process.

Unfortunately, the threat to firms is not only external: there have been conveyancing professionals who commit mortgage fraud, and solicitors need to be alert to conduct within their own ranks that may cause alarm bells to ring. In January this year, for instance, a solicitor was sentenced to seven years in prison for money laundering having played a part in helping a mortgage fraud criminal gang.

There are several other threats to firms, including phishing emails, malware, outbound and inbound cheque fraud and card payment fraud. As technology becomes more advanced, the criminals become more sophisticated.

Law Society guidance

As the Law Society makes clear: “Criminals will exploit weaknesses in lending and conveyancing systems to gain illegitimate financial advantage from the UK property market.” But practitioners must be alert to the fact they could be held criminally liable if a client commits mortgage fraud because the definition includes fraud by false representation, as well as failure to disclose information where there is a legal duty to disclose. So a conveyancer can now be personally liable even if they were not aware of the fraud or did not actively participate in it.

Warning signs and types of fraud: the practice note sets out the warning signs of mortgage fraud. These typically relate to identity and ownership of the property and its value. It also explains the types of organised mortgage crime and what each involves.

Protecting yourself: how can you protect yourself and your firm? The guidance highlights key areas including identifying and verifying your clients adequately. If you have specific concerns about someone’s identity, think about checking whether they are listed on a negative database, such as the register of deaths or a list of known fraudsters. Check Companies House if a company is instructing you, or if the seller previously bought the property from a company.

You should also ask questions if you receive unusual instructions from clients or you come across inconsistencies.

If a client asks you to use the reliance provisions under the Money Laundering Regulations to minimise the number of due diligence checks you conduct, the Society says you should treat this as a potential risk, and recommends further due diligence.

It is vital for practitioners to understand that criminal methodologies constantly change and evolve. Criminals always strive to stay ahead of the game, so it is important to remain alert to transactions that are unusual.

Conveyancing solicitors and support staff are recommended to read the practice note in full.

 

 

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