Property scams increase as a bogus mortgage company is discovered

The Solicitors Regulation Authority is reporting cases of solicitors firms being cloned by fraudsters just about every week.

And now the Financial Conduct Authority has just reported a case where a British-based mortgage and finance company has been cloned by fraudsters operating in Australia.

The company which has been cloned is Alternative Bridging Corporation (Cheval) Limited, a lender specialising in bridging finance and commercial property mortgages, based in Ruislip.

This legitimate company has just found that a fake company with an Australian address is falsely using their identity. The fraudsters have been purporting to offer mortgages on Australian properties.

They have been collecting up-front fees from buyers and even issued fake loan offers.

No doubt now the scam has been detected the fraudsters will rapidly disappear with the money they have collected, leaving many would-be property buyers out of pocket and with worthless loan offers.

Conveyancing transactions make a tempting target for fraudsters

Property transactions involve large sums of money with thousands of millions of pounds passing through solicitors' bank accounts every week. This is a tempting target for fraudsters who have found ingenious ways to siphon off some of this money.

At one time robbing a bank would involve masked gunmen holding up the cashiers and making their getaway in a fast car. But like much modern banking it is no longer necessary to go to the bank – instead the robbery can now be done online.

On way to do this is to set up a bank account using virtually the same name as an existing firm of solicitors, or perhaps the name of a real firm which no longer exists. You then set up the fake sale of a real property to a real buyer – the real owner doesn't have to know about the sale!

The fake firm say they are acting for the real owner and the buyer's (real) solicitors deal with them thinking they are the genuine firm. On completion they send the purchase money to the bank account which they assume to that of the genuine firm.

But the fraudsters promptly clear the money out of the account and disappear, leaving the buyer with no property and no money (and probably an irate mortgage company as well!)

This scenario might seem far-fetched as you would think that a buyer would know who was selling a property. But it has happened more than once and it is not too difficult for criminals to find a suitable property where they know the real owner isn't around – perhaps one that is empty because the owner has died or is abroad, or even one which has been rented from an unsuspecting landlord.

Land Registry intercepts rising number of fraudulent property sales

The Land Registry reports that they are finding a rising number of cases where fraudsters are 'selling' homes they don't own. The Registry has now set up a fraud hot-line where suspected cases of fraud can be reported.

Genuine owners can also register their property with the Registry's 'fraud alert' service. They will then receive an email notice of any applications relating to their property’s title, such as a request for a title search. If the owner does not know any reason for such a search being made they can report this to the Registry who can take appropriate action.

These initiatives have enabled the Registry to stop many fraudulent sales taking place, but property owners should heed the Registry's advice on fraud prevention.

Threat to conveyancing solicitors from bogus firms

Solicitors also face an ever-increasing problem with property fraud. Not only do they have to be on the alert for criminals trying to instruct them in connection with bogus transactions or for money-laundering purposes but they also have to be careful that they are not being tricked into dealing with a bogus firm.

At one time solicitors who dealt with conveyancing work would mostly deal with a few other solicitors' firms in the same locality and the people who handled the work would be well-known to each other. It was fairly rare for solicitors to be dealing with another firm that they did not know.

When property purchases were completed the buyer's solicitor would obtain a bank draft for the purchase money. A draft is a form of cheque issued by the bank itself which guarantees payment.

The solicitor would then go round to the seller's solicitor's office to complete the purchase. The seller's solicitor would hand over the title deeds and the conveyance or transfer signed and sealed by the seller, and in return the buyer's solicitor would hand over the draft for the purchase money. The chances of fraud were therefore extremely slight.

All that has changed with the advent of online conveyancing and electronic money transfers. Solicitors frequently find themselves dealing with other firms that they have never come across before.

But even if they think that they know the firm acting for the other side it is quite possible that they have been tricked into dealing with a bogus firm which has cloned a real firm by using a virtually identical name.

So it has become essential for solicitors to carry out checks before dealing with any firm that they aren't in regular contact with. This is especially important before sending money so a check has to be made to ensure that the bank account is that of a legitimate firm.

Time to adopt a safer system for money transfers?

One possible way to keep fraudsters at bay would be to adopt an electronic conveyancing system similar to that currently being trialled in Australia. There all completion monies will have to be paid through a special type of bank account which can only be set up by legitimate solicitors.

Money cannot be released to the sellers until buyers' solicitors are satisfied that the sale has been legally completed and everything is in order.

Such a system could help to make property fraud much harder and with the rising level of fraud in this county it is time that it is adopted here. It would probably require changes in the law so it would be necessary to persuade the government of the need for such a scheme as well as providing parliamentary time to pass legislation.

But with billions of pounds of clients money at risk surely this is something that a government of any political colour should be willing to adopt.