There is growing concern among property professionals that history may be repeating itself. Mortgage...
There is growing concern among property professionals that history may be repeating itself. Mortgage fraud tends to surface once the property market has peaked. With interest rates at their highest point in six years, repossessions approaching record levels and with more stringent lending criteria now being introduced, a waning in the property market is predicted.
Several recent raids by the Serious Fraud Office have revealed evidence of widespread and co-ordinated attacks on the lending system - often with the assistance of a small number of dishonest professionals. Common features are forged or stolen identification documents, the use of 'mortgage mules', sub-sales, back-to-back transactions and direct payments between seller and purchaser which obscure the true nature of the transaction.
Valuers, mortgage intermediaries and conveyancing solicitors must all be alert to the potential that they will be targeted for mortgage fraud and should be aware of the guidance issued by their respective regulatory bodies.
Lenders and mortgage brokers should adhere to the Financial Services Authority's mortgage code of business rules that apply to residential property transactions. Solicitors should refer to the Law Society's 'green card' warning on fraud and must be careful to certify the identity of their clients and must also report to the lender any links or direct payments between buyers and sellers.
Valuers must comply with the mortgage valuation specification guidance issued by the Royal Institute of Chartered Surveyors in the 'red book'. They must carefully inspect properties, resist any undue pressure from purchasers, check the authenticity of any lessee's covenant and, in the case of new build properties, consider the effect of sales incentives and seek comparables beyond the immediate development if possible. In short, professionals must exercise increased vigilance and must take steps to verify material facts underlying their opinions.
It remains to be seen what lies beneath, if and when the tide recedes. The previous round of litigation in the 90s and the guidance issued to professionals has highlighted many of the warning signs, and the courts will have little sympathy with those who have failed to heed them.
Mortgage frauds perpetrated against lenders will undoubtedly give rise to negligence claims against the property professionals involved as lenders seek to recoup their losses. In such cases, some small comfort for honest professionals lies in the fact that lenders too will need to demonstrate that they have now adopted a more responsible approach to lending if they are to avoid findings of substantial contributory negligence.
If the high level of self-certified lending witnessed in recent years is anything to go by, lenders may find themselves in difficulties.
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