Conveyancing and Fraud

"Having worked with the mortgage industry for many years developing system-based anti-fraud controls, in particular mitigating valuation risks, the latest area of our research and development programme extends naturally to the area of conveyancing-based risk. 

 

With an appetite for lenders to apply greater rigour to the entire application verification process, it is important to ensure that appropriate checks are being undertaken at every key stage of the process – from application, through to valuation and conveyancing, prior to completion. Additionally we must ensure that systems are linked to automate as much of this joined-up analysis as possible.

 

The current workflow for a mortgage application means that by the time a solicitor is instructed, lenders will have already reviewed the loan application and granted the loan in principle. There are however a number of due diligence safe guards undertaken at the point of conveyancing to further limit exposure to risk or potential frauds and our vision is to deliver a seamless system that automatically analyses risk at each stage of the transaction.

 

Anti-Money Laundering
As well as reviewing a number of warning signs that may suggest a suspicious transaction – such as whether the legal professional has met the client face to face, if the deposit is being paid by a third party, or left over monies from the transaction are being paid to an external party – applying the requirements from the CML Handbook, in addition to undertaking Anti-Money Laundering (AML) checks should help towards identifying fraudulent cases.

 

Whilst legislative AML guidance exists, there is no benchmark to ensure one AML service is comparable to the next and no specific governance in place to ensure that all parties in a transaction comply with the regulations. Plus, there is no easy way to check if an AML audit has been carried out by each professional in the transactional chain. As such, this leaves gaps in the process and makes it potentially possible for fraudsters to take advantage of the system.

 

For example, a fraudster may attempt to beat an electronic AML check if they are providing the correct information regarding another person’s identity and have false documentation that incorporates their own photo. It would then be entirely down to the lending organisation to identify other information disclosed in the application that appears to be out of place and therefore raise an alarm to the appropriate parties.

 

Identity Fraud
Unfortunately, the fraudulent use of identity data is on the increase. The UK’s fraud prevention service, CIFAS, released its ‘FraudScape Bulletin’ in August, which backed-up this very point. The half-yearly insight into the latest fraud-related trends identified that of the 113,980 cases recorded for the first half of 2013, two out of every three frauds (66%) were as a result of identity theft.

This compares to application fraud (at 18%) and misuse of facility (at 15%). In fact, in the previous year, CIFAS confirmed that over 150,000 cases had an identifiable victim illustrating the true scale of this problem.

 

When it comes to cases of identity fraud that lenders and conveyancers need to be aware of, typical mortgage cases include examples such as unencumbered fraud. This involves someone attempting to access funds using a property that has no mortgage linked to it. So, this could be an empty property, is part of a deceased person’s estate or perhaps has an absent landlord. The perpetrator, using false identification, seeks to access a low-LTV product and hopes to keep under the radar by applying for a low-risk mortgage, using identification that matches those on the deeds of the property in question.

While the Law Society provides practice notes that offer guidance on how conveyancers can protect themselves against such risks, we are also working with nominated Compliance Officers for Legal Practice (COLPs) within conveyancing firms to assess ways in which the due diligence and AML checks can be automated and integrated earlier in to the risk management analysis process.

 

By eliminating the loopholes that fraudsters are exploiting we believe that a joined-up approach that electronically evidences the outcome from the varying AML suppliers is an important step forward. Removing paper-based searches and automating the entire process will provide greater assurances earlier in the process.

 

Alerting Tools
In addition, we are working with a number conveyancing panel managers and third party risk management firms to create new alerting tools that automatically analyse applications at each stage of the process – from applicant, valuation, to legal completion – to provide integrated risk management that systematically checks for discrepancies at every step of a mortgage transaction and links the professionals involved to further guard against 3^rd party involvement.

 

Based on the latest figures from CIFAS, it would seem that fraudsters appear to have the brazen ingenuity – and downright fearlessness – to continue to deceive lenders by hiding behind stolen identities, and therefore we must continue innovating with new alerting tools and technology innovation that prevents as many attempts to defraud as possible.

 

As technology continues to evolve, we believe that the tide will start to turn as fraudsters have ever fewer loopholes to exploit due to transactions being made more transparent and key data intelligence being shared from one professional to the next involved in the property transaction."

Richard Groom, Product Development Director, Landmark Information Group

As published in the September edition of Mortgage Finance Gazette magazine

Energy & Infrastructure Report launched

House prices and saleability could be hit by aftershock from High-Speed 2 Rail and fracking, warns Landmark Information Group

Following reports that around 350,000 homes affected by the proposed new high speed rail network (HS2) yet receive no compensation, many more homes across the UK face a further potential threat of which solicitors need to be aware and investigate during the conveyancing process: fracking.

Fracking – which is also known as hydraulic fracturing - is caused whilst extracting gas from rock during on-shore energy exploration and production. It results in earth tremors which can affect a property’s structural viability and therefore have a major impact on the value of a home. Small earthquakes have already occurred in the North West, where recent reports indicate that property values could drop by as much as 30%[1].

Chris Taylor, Product Development Director, Landmark Information Group, said: “Fracking is a very real threat. As fracking will become far more widespread over coming years, it is essential that homeowners and potential homeowners are made aware by their solicitor of any plans for shale gas extraction and the impact that fracking could have on their property.

“With regards to the HS2, at present, local authorities have only identified properties within 200 metres of the proposed rail link as likely to be affected, but this isn’t a true representation. Homes a long way outside this boundary could incur increased noise and environmental nuisance during the construction period and beyond.

“It is not, however, necessarily all bad news for every homeowner living near the HS2. Many of the segments of the rail link will be underground and will, therefore, cause little or no harm at all to the nearby properties; trains will generally not be heard above ground. Many homeowners may even be considering selling their home due to a lack of detailed information. Equally, potential buyers may be discouraged from purchasing a particular home due to concerns that it will affected by HS2.

“Furthermore, homes near stations on the proposed route may in fact benefit and see their property increase in value thanks to the new and vastly improved transport links. This is why it is so important for solicitors to investigate the impact of the HS2 on a particular property in order to obtain the facts, rather than homeowners and potential homeowners assuming the worst and worrying unnecessarily.”

Clive Read, Partner, Real Estate Group of SGH Martineau LLP said: “I am aware of one homeowner whose property is within 200 metres of the proposed route and who saw the value of their home plummet following the announcement of the HS2 project. Sadly, this was not an isolated case - when the proposed HS2 route was announced in 2010/11 the value of many of my clients’ properties fell by up to 30 per cent. Many existing clients are unable to sell their properties at true market values due to the blighting effect of HS2. I have advised a number of clients on applications under the HS2 Exceptional Hardship Scheme and such applications are proving difficult - HS2 Limited has only approved approximately 20 per cent of all claims it has received.”

Chris adds: “There is still a huge amount of uncertainty for property owners who are still waiting to find out if their property will be devalued or bulldozed. While the Exceptional Hardship compensation scheme is available to people living on the proposed route of the London to Birmingham and covers all types of property, it is not available to those over the tunnelled sections of the proposed route or to those affected by fracking.”

To relieve the burden from solicitors, Landmark has launched a brand new service: The Energy and Infrastructure Report. Designed to enable homeowners or potential purchasers to make informed decisions during property transactions, the report identifies whether or not a property is likely to be affected by environmental or noise pollution caused by the proposed link and/or fracking.

Chris concludes: “Unlike the local authorities’ reports we search up to 5km from the property. The report also clarifies if the property is affected by fracking or is near the proposed new route, as well as how the route affects the property, such as by noise pollution. The report shows if the home in question lies directly in the path of the route, and whether the line is in a tunnel, in a cutting, at ground level or on a viaduct.”

Landmark’s Energy and Infrastructure Report is priced at £15 + VAT.  For more information, visit www.landmark.co.uk.

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[1] http://www.mortgagesolutions.co.uk/mortgage-solutions/news/2276883/fracking-risks-reducing-house-prices-by-30