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IM on the Money - Issue Seven

The Many Faces of Mortgage Fraud

As we probably don’t need to tell you, the types of mortgage fraud are becoming increasingly sophisticated. The so called ‘buy to let to live’ fraud is growing. Imposter fraud is also on the rise with fraudsters using high quality forgeries and showing a sophisticated knowledge of the inner workings of the underwriting, conveyance and land registration processes.

England and Wales is seeing an increasing level of ‘vendor fraud’ where someone pretends to be the other party and obtains the money. The other tactic is for vendor solicitor details to change at the last minute. Intermediary fraud is another concern. This includes brokers and solicitors as well as surveyors. The worry is that often the intermediaries’ processes are weaker, or less strict than the banks own practices and these are being exploited.

While some types of fraud, such as vendor fraud, are unlikely to take place in any major way in Scotland, other types such as ‘buy to let to live’, or ‘imposter fraud’ are happening. The following have been highlighted are in Scottish courts recently.

In Frank Houlgate Investment Company Limited v Biggart Baillie LLP [2011] CSOH 160, Lord Glennie at the Court of Session ruled that an investor who lost around £480,000 to a conman impersonating the real owner of a property could pursue a damages claim against the conveyancing agents.

The firm had truly believed they acted for the owner of the property but in fact were duped by the conman. Two other cases involving lender mortgage fraud in Scotland are Cheshire Mortgage Corporation Ltd v Morna Grandison (Judicial Factor of Longmuir) & Co and Blemain Finance Ltd v Balfour + Manson LLP both referenced [2011] COH 157. In both cases, the fraudster applied for the loans pretending to be the owner of particular properties which were being offered to the lenders as securities.

There are a number of reasons why the level of mortgage fraud in Scotland seems disproportionately low to England and Wales. For many lenders, the amount of loss from mortgage fraud in Scotland might fall just under their appetite to pursue claims. The other factor is that it is often seen that fraud can be wrongly categorised or written off as poor practice/negligence.

So what are lenders doing to help themselves?

In recent years, lenders have significantly reviewed and tightened underwriting processes. They are conducting more intelligence driven back book reviews.

Random checking of self-certified applications and information provided has been increased and spot checks or audits of intermediaries have been stepped up.

Some lenders now have closed panels whereby they employ in-house solicitors and surveyors.

Working together and sharing intelligence is high on the agenda. The UK wide Mortgage Verification Scheme has been praised. The lending industry already shares alerts and intelligence about known fraudsters. Many police forces around the UK already have specialised fraud units and the idea of lender funded units within the police has also been raised.

For more information or to discuss in more detail contact Khalda Wali at khalda.wali@irwinmitchellscotland.com

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