Cyber attacks on property transactions are rife

In the modern age of property transactions, what is the biggest risk to mortgage lenders and what impact does this have on their relationship with the conveyancing profession?

In a recent survey conducted by TM Group, 28 members of the Council of Mortgage Lenders (CML) indicated where they thought the biggest risks originated. More importantly, they were asked what the impact was of these risks and how they can best be managed.

Mortgage fraud is one of the most significant risks to lenders. In its 2013 annual fraud indicator report, the National Fraud Authority estimated the annual loss attributed to mortgage fraud at £1bn. Not only can financial crime prove extremely expensive for a lender, but it can also pose a threat to their credibility with the public.

Solicitor negligence

Steps have been taken by both the CML and the Financial Services Authority to reduce the risk of mortgage fraud, but, in 2013, the Financial Times reported that mortgage fraud
is more widespread than ever before. Indeed, it was revealed in a report by Experian that attempted mortgage fraud
rose to 38 cases in every 10,000 applications in 2012, up from
35 incidents per 10,000 applications in 2011.

Interestingly, between 65
and 75 per cent of professional indemnity insurance (PII) claims against solicitors typically
relate to property transactions, and it’s certainly the case that conveyancing is among the riskiest sectors within the legal profession.

Negligence can come in different forms, however,
as pressure on residential conveyancing fees has seen a tendency for conveyancing work to become increasingly driven by processes and be at risk of commoditisation.

The profession has, at the same time, been targeted to a greater extent than ever before by petty fraudsters and organised criminal gangs,
who have spotted the opportunity for rich pickings
in property transactions. Indeed, it was reported recently that the Solicitors Regulation Authority received 549 reports of bogus firms in 2013, a 57 per cent increase on the number from 2012.

So, with criminal activity on the rise and with strains on the time and resources available to firms, it’s increasingly vital to carry out thorough checks
when processing property transactions.

Bogus firms

The issue for solicitors is
that fraud will not always
be immediately apparent. Fraudsters will often use at
least one professional within
the transaction, whether that professional is involved or
not, but, as the Law Society explains in its anti-mortgage fraud guidance note: ‘Courts
will assume a high level of knowledge and education on your part. They will often be less willing to accept claims that you were unwittingly involved if you have not applied appropriate due diligence.’

A recent case evidencing
this was Santander UK v RA Legal Solicitors [2014] EWCA Civ 183,
in which the now-defunct firm RA Legal was found to be negligent in unwittingly paying £150,000 of Santander’s money to a bogus law firm. It is therefore increasingly vital to check the actual solicitor you’re dealing with, even if you are aware of
the firm.

Timing is also important. There have been numerous reports that conveyancers or support staff are targeted at 3pm on a Friday afternoon by fraudsters.

Once the crime has been committed and the client reimbursed by the PI insurer, this will either have a dramatic impact on the firm’s PI premium or the firm will face litigation.

A new trend emerging is for fraudsters to invent fake branches for a real firm – even going so far as to clone the firm’s website – in order to trick you into handing over your client’s money. A quick check of the Law Society’s website is no longer sufficient and doesn’t take this threat into account.

A significant number of lenders are keen on improving the panel registration process, which has been a hot topic in recent years. Most lenders will dramatically reduce their panels to help solve this issue.

The lenders have largely controlled the surveyors by implementing Quest case management systems in all transactions. Is there a similar solution for conveyancers?

Controlling processes and procedures and following parts one and two of the CML lenders’ handbook will significantly reduce errors.

Despite these problems,
the housing market remains buoyant. Transactions are on the increase, but there remains a shortage of high-quality conveyancers. The only way to deal with these increasing volumes is a processed workflow solution.

Most lenders consider solicitor negligence to be the biggest type of fraud risk to their business, so investing in workflow technology with built-in controls is essential to remain on lender panels. Cyber crime is a growing trend and the only way to avoid the fraudsters will be extra diligence and technology. SJ

Viv Williams is CEO of 360 Legal Group