Avoiding Property Fraud

by Richard Tymkiw on July 19, 2018
Richard-Tymkiw

Banking fraud has in recent years received much publicity.  Banks and consumer organisations repeatedly warn us of the risk of fraudsters draining our accounts, and how to guard against it.  The risk of conveyancing fraud is less widely broadcast, yet the consequences can be just as catastrophic.  This is in part why, if you instruct conveyancing solicitors in a property sale/purchase, they will carry out stringent checks on your identity, the ownership of the property and the source of funds used for the purchase.

Two cases decided by the Court of Appeal in May 2018 illustrate what happens when a conveyancing fraud goes undetected.  In each case, the purchaser ended up not owning the property they thought they had bought, and they were unable to recover the purchase monies from the fraudulent seller.  The court considered the potential liability of others involved in the transaction, including solicitors, and whether the purchaser could seek redress from them.

P & P Property Ltd v Owen White & Catlin LLP concerned the sale of a property at 52 Brackenbury Road, London W6, owned by a Mr Harper.  A person claiming to be Mr Harper instructed Owen White & Catlin solicitors to act for him in selling 52 Brackenbury Road.  It was to be a quick sale to a cash buyer.  Winkworth estate agents found a buyer, P & P Property Ltd, who paid £2.3 million for the property.  After completion, when they tried to register their title, it was discovered that the “seller” was not the true Mr Harper, did not own the property and had no right to sell it.

Mishcon de Reya and Mary Monson Solicitors Ltd v The Law Society (Intervener) concerned the purchase of a property known as 8 Old Manor Yard, London SW5, owned by a Mr Haeems.  Douglas & Gordon marketed it for sale, saying the owner was going through a divorce and needed an urgent sale within three days.  A property company, Dreamvar (UK) Ltd, viewed Old Manor, made an offer of £1.1 million that was accepted and instructed Mishcon de Reya to act for them in the purchase.  Mary Monson Solicitors acted for the seller, a person claiming to be Mr Haeems.  Completion took place in less than three weeks but when Dreamvar tried to register their title, the Land Registry rejected their application.  It was discovered that the “seller” was not the real Mr Haeems and, as in the case of P & P Property Ltd, did not own the property or have the right to sell it.

In both cases, the Court of Appeal found fault with the solicitors acting for the “seller”, for not having carried out proper checks on their identity and on ownership of the property.  They had missed warning signs such as the “seller” using more than one correspondence address; operating from abroad; providing as proof of residence only one instead of two utility bills; providing as proof of residence copy bank statements that were incomplete; and signing documents with different signatures. In the second case, the Court of Appeal also found fault with the solicitors acting for the buyer: in paying the purchase monies to the seller’s solicitors, they had failed properly to protect the buyer against risk of fraud.

The Court of Appeal’s ruling is potentially good news for buyers who are the victim of a fraudulent property transaction, and end up not owning the property they thought they had bought.  In certain circumstances, if they are unable to recover the purchase monies from the fraudster, they may be able to claim financial redress from the seller’s solicitors and/or their own solicitors.

This is a wake up call to solicitors, who are already required to make certain ID checks when taking on new clients, to guard against money laundering and financing terrorism.  If you are buying or selling a property, you can expect your solicitor to carry our rigorous checks on your identity, your address and (if selling) your ownership of and entitlement to sell the property concerned.  It may feel as if you are being treated as “guilty until proven innocent”.  Unfortunately, with there being a real risk of conveyancing fraud, this is the approach solicitors need to take.

There is another angle to consider, namely how can you prevent fraudsters assuming your identity and purporting to sell your property in a fraudulent transaction?  HM Land Registry now runs a free property monitoring service for properties situated in England or Wales and registered with HM Land Registry (these days almost all properties are registered).  You can find full details at https://propertyalert.landregistry.gov.uk.

In summary, you can create a Property Alert account with the Land Registry, and list up to ten properties you would like to monitor.  When the Land Registry receives requests for searches or applications against a property you are monitoring, it will send you an email alert.  If you think the activity seems suspicious, you should follow instructions in the email alert to notify others.

You do not have to own a property to set up an alert against it.  You could, for example, set up alerts for properties owned by family members such as elderly parents, or by close friends.  As well as safeguarding you and your family/friends, setting up a Property Alert account could also help protect an innocent buyer.  It is certainly a step worth taking.