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Mortgage Fraud: Lawyer Responsibilities

Mortgage Fraud: Lawyer Responsibilities. by John E. Jones Director for Learning & Development. “The general assumption is that if there has been a property fraud a solicitor must have been involved”. The Law Society. Issues to be discussed:. What is Mortgage Fraud?

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Mortgage Fraud: Lawyer Responsibilities

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  1. Mortgage Fraud: Lawyer Responsibilities by John E. Jones Director for Learning & Development

  2. “The general assumption is that if there has been a property fraud a solicitor must have been involved” The Law Society

  3. Issues to be discussed: • What is Mortgage Fraud? • Scale of Mortgage Fraud • Joint initiative by FSA / CML on “suspicious mortgage applications • Law Society - Mortgage Fraud Practice Note (15/04/09) formerly the ‘Green Card’ • Compliance – SRA, AML & POCA • What to look out for? • Specific concerns • Particular frauds

  4. What is mortgage fraud? Mortgage fraud occurs where individuals defraud a financial institution or private lender through the mortgage process Fraud Act 2006 under this Act the definition of fraud covers: fraud by false representation fraud by failure to disclose fraud by abuse of position The value of a mortgage obtained through fraud is the proceeds of crime

  5. Disciplinary proceedings from his professional body for breach of the professional conduct rules Civil proceedings for negligence or breach of contract, e.g. by a lender who has suffered loss Criminal prosecution for aiding and abetting a fraud or conspiracy to defraud. A guilty verdict invariably means a custodial sentence and being struck off the roll of solicitors. Risks to the Lawyer

  6. KPMG Forensics' fraud barometer – 2007 – ten cases of mortgage fraud went to court, worth £3.75 million. In the first half of 2008 there were nine cases coming to court, worth £20 million. Reports of suspected mortgage fraud to the SRA Fraud Intelligence Unit rose from 85 in 2004 to 293 in 2007. Some solicitors are failing to warn lenders about suspicious features of transactions. In one year the Law Society Compensation Fund paid out £29 million due to mortgage fraud The Scale of Mortgage Fraud

  7. Aim – to combat financial crime & mortgage fraud In place since April 2006 A consistent approach to reporting fraudulent activity by mortgage intermediaries Sanctions – possible criminal charges, enforcement action by FSA, and removal of broker from lender’s panels Is broker aware of the fraud or has he been duped by the client? Joint FSA / CML Initiative on ‘Mortgage Fraud’

  8. Proven Fraud Forged/fake papers i.e. wage slips, passports, bills, etc. False employment and income details Inconsistent information relating to the same applicant i.e. various applications made with different incomes/details to same lender Examples of Proven & Suspected Fraud identified by the FSA & CML Suspected Fraud • Doubts over income and employment details • Suspicious behaviour or trends occurring on completed accounts e.g. a broker whose completed cases have an unusual rate of arrears/ repossessions • Links with other applications where fraud has not been proven i.e. shared addresses, identical loan amounts etc. • Applications cancelled when further info’/verification is requested

  9. Within the conveyancing process the lawyer must be conscious of: KYC (‘know your client’) AML & POCA SRA – Rule 3 The Law Society ‘Practice Note’ CML Handbook Fraud Act 2006 Compliance

  10. The signs to watch for include: Fraudulent buyers Fictitious lawyers Unusual instructions e.g. asked to remit mortgage proceeds to someone other than the client Misrepresentation of the purchase price Deposits or part of purchase price paid direct to the seller Incomplete / inaccurate contract documentation Changes in the purchase price i.e. allowances Unusual transactions i.e. client using an alias or seller ‘gifting’ the deposit The Law Society ‘Practice Note’

  11. Be on your guard (have robust checking systems in place) Verify the identity and bona fides of the client Check that the other side’s lawyer actually exists? Question unusual instructions Discuss with the client any aspects of the transaction that worry you Check that the actual price paid is stated in the contract, transfer & mortgage offer Do not witness pre-signed documentation Verify signatures Whenever possible avoid acting for both parties where a mortgage is involved in one of the transactions Be transparent (disclose all relevant facts / concerns to the lender) What steps should the lawyer take to minimise the risk of fraud?

  12. Self-certified mortgage applications Valuations “Back-to-Back” transactions Sub-sales “Off-plan” / New Build purchases (CML Disclosure of Incentives Form) Specific concerns

  13. Opportunistic mortgage fraud Large scale mortgage fraud especially in the buy-to-let market Use of non-bank lenders Use of corporate structures ‘Flipping’ and back-to-back transactions Use of professionals Foreclosure fraud (involving ‘sale & rentback’ schemes) Mortgage application hijack Title hijack After the event mortgaging Claiming deceased estates Court orders for sale Particular frauds

  14. Any Questions? • For more information or to raise any queries from today’s • presentation please e-mail me at • jjones@goldsmithwilliams.co.uk or call me on 0845 373 6073 • Please also visit our websites websites: • www.gwlive.co.uk or • www.goldsmithwilliams.co.uk

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