Property fraud: Clear and present danger

Time was when mortgage fraud was high on every solicitor's radar. The problem has not gone away but it should no longer top a firm's risk register. Firms face two more immediate threats: fraudsters who target vulnerable properties and, more generally, those who intercept cash transfers. Firms need to be nimble in their response to threats, which are constantly evolving.

There are over five million vulnerable properties in this country. These are empty or buy-to-let properties, with those that are free of mortgage being most attractive to fraudsters.
The net proceeds of sale are obviously significantly higher. The Land Registry is doing what it can with its Property Alert service but, after two years, only 32,000 owners have signed up, leaving a huge pool of exposed properties. If you haven't yet, request copies of the Land Registry's fraud leaflet to send
to clients.

The fraudster will probably have visited the property being targeted. Take, for example, a buy-to-let property where the last tenant has left. The fraudster persuades the landlord that they are the preferred new tenant by stealing the identity of someone who fits the bill. This enables the fraudster to gain access to the premises. It is then a question of stealing the owner's identity, instructing estate agents, and agreeing a sale, matters which present few obstacles for the fraudsters.

Warning signs

The recent case of Purrunsing v A'Court & Co and others [2016] EWHC 789 (Ch), concerning a fraud in 2012, makes it clear that the solicitors on both sides of a transaction risk a breach of trust claim if a sale goes through without a genuine transaction.
If either firm is to obtain relief under section 61 of the Trustee Act 1925, they need a good story.

The seller's solicitor needs to be especially careful when instructed for the first time by a client purporting to sell an empty property. Solicitors need to be on the lookout for inconsistencies and to advise clients accordingly. Fraud warning signs tend to be pieces of a jigsaw, so don't expect a blinding revelation.

On your file checklist, add a section headed 'Fraud Indicators' and jot down anything that strikes you as odd (as an aide-memoire and in case the file is picked up in your absence). Every transaction has its oddities, but with everything noted in one place, you are more likely to spot a developing picture. Life should never be so hectic that you don't have time to pause and reflect.

If the client gives instructions that are inconsistent with the documentation you hold or fails to produce anything which links them directly to the property, make a note. Consider asking who acted when the property was acquired and in what circumstances, whether you should request the previous firm's file 'to speed up the sale', and, if relevant, why you cannot write to them at the address on the Land Registry title. The circumstances of each transaction should prompt
you to ask other questions.

Money transfers

When it comes to money transfers, the other main area where solicitors are being targeted, the fraudsters are indiscriminate. They can be based anywhere when attacking transfers in either direction for any property. Emails are intercepted and bank details
are changed.

Although the risk is great, simple steps can combat the fraud. Update your client care letter, so that it refers to fraud risk. On the copy signed by the client, amend the declaration to refer to the fraud risk you have identified. On a belt and braces basis, update your terms of business as well and include a warning in your email footers, although you cannot be sure that these will be read. One firm of licensed conveyancers recently saw its clients lose over £200,000 despite a three-page cyber risk newsletter on its website (although it is not
clear whether this was ever specifically drawn to the clients' attention).

To minimise the threat, exclude your bank details from emails, refuse to act on bank details in unencrypted emails (unless independently verified), and speak to clients before any significant sums are transferred.

Many firms have been slow to adopt new procedures, which is odd when so much is at stake, with no guarantee that losses will be covered by your insurance policy. Quite apart from any claims for breach of trust or negligence, reports in the national press can carry significant reputational damage. Vigilance and a willingness
to adapt to changing circumstances are essential. SJ

Tim Prior is director of PNCR Legal