Real estate fraud – help us help you to eliminate the risk

One of the biggest benefits of the digital and information age has been the increased agility in carrying transactions – these are now able to take place almost instantaneously.  This increased agility has brought with it the problem of increased vulnerability – especially to the risk of fraud.

According to reports, the cost of fraud cost in the UK runs into the tens or hundreds of billions each year (the exact figure is not known, as much fraud is not reported to the authorities).  Fraudsters continue to devise cleverer and more devious means.  In the real estate world, this can take a multitude of forms.  Here are some of the more common ones.

Adopting a fictitious ID and forgery

• Offering to buy properties under a fake ID, withdrawing prior to exchange, so as to obtain information in a seller in order to commit title fraud.
• Obtaining a mortgage offer under a fake ID and absconding with the drawdown.
• Impersonating a registered proprietor in order to sell or re-mortgage property.
• Forging a discharge in order defraud a lender leaving the fraudster free to sell the property.

Impersonation of conveyancing firms

• Use of fake letterheads copied from real firms in order to mislead a buyer’s solicitor or a lender into parting with money.
• Pretending to open a branch of a real law firm (without them knowing) and using that to operate fraudulent transactions.

Email communications

• Interception of email by sending a fake email with different bank details on it, causing payments to be made incorrectly to the fraudster’s account.

Who is at risk? Everyone is exposed to risk in some form or another.  Here are examples of a couple of categories of individuals who are at particularly high-risk.

Individuals who own unmortgaged freehold property.  In one case, a criminal gang targeted high value residential properties in the London area being marketed for rent. The landlord only had one notification address (that is, their address for service) recorded on the register of title and that address was the rental property as opposed to an address where they lived or worked.  The landlord let the property to the fraudsters and received six months’ rent in advance, which gave the fraudsters possession of the property and time to commit the fraud.  The gang successfully sold the property for £1.3m.

The purchase in that case was not registered by HM Land Registry. The registered title fraud was prevented because of certain fraud indicators.  In this instance the indicators were:

• The owner was a sole owner who had one address for service which was the rental property, was long established, having owned the property for over 20 years.
• The property was vulnerable because it was unmortgaged, of high value and not lived in or not occupied by the owner.

What can be done?  Small changes would have protected the freeholder owner:

• ensure that the address of the proprietor on the registers of title was accurate;
• register a restriction at the Land Registry free of charge (see my earlier article: Land Registry Protection from fraud).

Individuals who operate insecure email accounts.  We know that details of 3 billion user accounts were leaked by Yahoo in 2013 as part of an online hack.  There are malicious groups and individuals out there who scan email traffic for certain words – especially to do with money or banking and then exploit vulnerabilities such as easy or leaked passwords.

What can be done?  It is difficult to remember new passwords, but it is worth changing these frequently.  Any bank details submitted by email should be confirmed by telephone.  That is our standard practice – we ensure that all bank details are verified before money is sent out.

What do we need to do, as solicitors?

We are under an ever-growing responsibility to mitigate against the risks of fraud.  Solicitors have long had responsibilities under money laundering regulations to identify clients.  This now extends to all people we deal with on property transactions.

We need to be satisfied that other firms are who they say they are, that individual solicitors or conveyancers are bona fide.  We have duties with regard to politically exposed persons involved in transactions in relation to the prevention of bribery and corruption.

You will no doubt come up against our procedures which are designed to protect you – and us – against fraud and its consequences.  We trust you will excuse us as we carry out our duties to ensure that we obtain proper ID from all our clients and interested persons; as we phone check bank details ahead of making a transfer – and ask you to do likewise; as we occasionally ask searching questions of you to enable us to understand where money is coming from and why things are being done in a particular way.

What can you do to help us?

• Let us know if you think something is unusual or suspicious in relation to activity on your email or bank account during a transaction.
• Keep your eyes and ears open during negotiations or the progress of a transaction. If you are dealing with someone who is:
  • not being straightforward or fails to answer certain questions;
  • won’t disclose their address;
  • appear to be ‘fronting’ a transaction where the other people involved are never seen from or heard of;
  • is operating from an unusual or distant location;

      you are advised to ask relevant questions or, better still, raise your concerns with us.

• Check bank details carefully. We will not suddenly change our bank details – emails that indicate a change in bank details are usually impersonation.
• If you get an email purporting to be from us which you think is strange, call us – using the number on our website or from a reliable source.