Mortgage Fraud

How Mortgage Fraud Operates To Trap the Innocent

Many innocent professionals have found themselves unwittingly caught up in a mortgage fraud. If you are in that position we can help you clear your name. We have decades of experience in criminal and quasi-criminal law.

Where certain individuals have set out to defraud a financial institution or private lender through the mortgage process, innocent people can get caught up in the scheme, unaware that advantage is being taken of them.

The Individual Applicant

On an individual basis, mortgage fraud can be alleged against individual applicants who have obtained a higher mortgage than they may have been entitled to, by furnishing information about themselves which was misleading or false.

It might be alleged that you have provided false information about identity, your income, your job, your outstanding debts and liabilities, where your deposit has come from, the value of the property you are buying, the purchase price and any private arrangements you may have with the seller.

It is not always clear-cut whether a piece of information was false or given dishonestly or whether it was given by you at all, or indeed if you knew about it.

More Large-Scale Mortgage Fraud

Large-scale mortgage fraud usually involves several properties. In recent times the buy-to-let market, in particular, has been targeted for this activity.

The method may be as follows: a mortgage application is forwarded to the lender.

The applicant may be a fictitious person or a person put forward who has no real connection with the property to be mortgaged.

The property to be mortgaged may already be owned by the fraudsters behind the applicant.

The property when valued is given an inflated value (sometimes by a compliant and dishonest surveyor) and a mortgage will be sought for the fully-inflated valuation.

In the event of repossession the lender is inevitably left with a shortfall, having lent far more than it can recoup.

Sometimes mortgage payments are then not met or innocent tenants are put in.

Alternatively the properties may be just abandoned.

A variation on this is where the lender seeks payment of the first mortgage, a further mortgage is raised by the same method: misleading details and gross inflation of the value via a dishonest surveyor.

The property is then sold by the fraudster to himself at the inflated value. On this basis it is the second lender who finds himself with the shortfall, the first mortgage having been paid off with the sale proceeds.

Mortgage Fraud Only Works in a Rising Market

Like all mortgage fraud this only works in a rising market: where ‘natural’ house price inflation can be manipulated by the fraudster in valuations presented to the lender.

This can be repeated several times generating substantial criminal proceeds by pocketing the difference between real and inflated value.

Sooner or later the lender forecloses to find that has a loan on his books far in excess of the value of the property has had to repossess.

Innocent People Do Get Caught Up

In the above case it may be that a surveyor was acting innocently but was too optimistic in his valuations. It may be he was negligent by perhaps not going to see a property before valuing it, or taking a colleague’s word for it, or under pressure.

The surveyor in those circumstances may well have a defence to the allegation of mortgage fraud which requires dishonesty as opposed to negligence.

Lenders other than the high-street lenders are sometimes duped in this way. Sometimes the buyers and sellers are companies created for the purpose, not individuals.

The issue then might be whether it can be established that a particular person was connected with that company.

A property may sold several times within a group before approaching a lender for a mortgage at an inflated value.

Innocent solicitors, keen for business, may be asked to act for both the seller and the purchaser in such transactions and unwittingly find themselves helping a conspiracy to move forward.

Fraudsters may seek to re-sell a property very quickly for a substantially increased price.

Sometimes the first mortgage is not registered against the property by the time of the second sale and is not re-paid on completion.

The second buyer may be fictitious or using a false ID. The value is grossly inflated and the fraudster pockets the difference.

Where Innocent Professionals Can Unwittingly Help The Mortgage Fraudster

Let’s be clear, some professional people are willing parties to mortgage fraud. Others are innocently assisting the conspiracy to progress without knowing it.

Fraudsters will sometimes use mortgage brokers and introducers to give reassurance to other more-peripheral professionals helping with details of a property transaction.
 
Mortgage lenders rely on these professionals. They gain reassurance from professionals’ involvement that the transaction is legitimate. The lender themselves may not spend too much time checking information they receive, especially in boom times.

Solicitors are relied upon to comply with Council of Mortgage Lenders guidance and that of their own professional body.

Solicitors May be Asked To Do Unusual Things

But solicitors will sometimes be asked to do unusual things and if the alarm bells don’t ring they may find themselves on the wrong end of an allegation of being part of a conspiracy to defraud.

For example they may be asked to complete the transaction and transfer the title in accordance with already exchanged contracts. A lender may have already approved the loan and approach you with completed paper work.

A solicitor might be encouraged to alter the value on the Certificate of Title given to the lender or not to comply with obligations in the CML Handbook.

They might be offered ongoing work at a higher fee while discouraged from carrying out too many “unneccessarily” diligent checks.

Mortgage fraud is sometimes perpetrated through the equity release process. A home-owner seeking to release equity will sell their home and rent back from the buyer.

The buyer assumes a mortgage on the property borrowed on the basis of an inflated value, the original loan is paid off.

While the owner may begin to receive some income, the mortgage repayments will not be made and the fraudster will disappear with the equity in the house plus the overvalue sum.

The one-time owner is now a tenant and will be evicted. He will no longer be able to afford his old house.

It is of course possible he may be accused of complicity in the matter.

Application Interception

Application interception occurs where fraudsters intervening before completion of a mortgage, claiming to be the new legal representatives for the purchaser (using false letterheads and bank details).

They may well use the details of an innocent solicitor against whom allegations may then be made.

The fraudsters receive the mortgage advance purportedly on behalf of the seller, and disappear.
 
Re-Mortgaging

Provides an opportunity for fraud through the relatively simple device of inflating the value of a property already owned by the fraudster.

Bridging finance can also be obtained on property which cannot secure a loan because it is e.g. to be repossessed imminently by a different lender.

Claiming the Estates of Others

Fraudsters will sometimes seek to claim the estate a deceased person by posing as that deceased person or an heir. They will seek a mortgage over the existing equity in the property and then disappear with the funds.

Court Orders

They may also use the court system by obtaining judgement for a non-existent debt. Part of the court process gives a claimant the choice to issue proceedings for debt and serve notice of the claim on the alleged defendant themselves.

By not giving notice, summary judgement can be obtained from the where no defence has been filed (the defendant being in total ignorance of the claim). Usual targets are property-owners with properties which are unoccupied.

An order for sale is made pursuant to the judgement by way of enforcement and then bought at an inflated price by a conspirator and re-mortgaged at an inflated value.

The true owner is oblivious to what has happened. No repayments are made and the fraudster disappears with the proceeds.

Clues For Professionals To Spot Mortgage Fraud

•    Instructions being given at arm’s length, from distance
•    New, generous clientele
•    Alleged purchaser client curiously uninformed re his purchase
•    Private company purchases : who is behind the company?
•    Sudden speculation from an existing client
•    Flipping properties
•    Short credit history for client
•    Back to back transactions: who is subsequent purchaser?
•    Late change of representation on the other side
•    Property history shows flipping
•    Finance sought shortly after registration of purchaser
•    Young persons posing as long-term owners of property
•    Odd e-mail address for alleged professionals on other side
•    Court judgement on the property
•    Property value has significantly increased in a short period
•    The mortgage is for the full property value
•    The deposit is being paid by someone other than the purchaser
•    The purchaser has paid the deposit directly to the seller or a developer
•    Solicitor asked to pay proceeds to the account of third party
•    Solicitor asked to enter a price on the title that is greater than paid
•    Recent transfer where no money has changed hands or the price was less

      than market value.
•    Concerns about a person's identity
•    Fraudsters try to avoid meetings
•    Fraudsters will try to limit scrutiny of their identity and the transaction
•    Is the property and mortgage are consistent with the client’s position.
•    Documents not fully completed
•    Pre-signed documentation
•    Any discrepancy between the value recorded and paid
•    Changes to the purchase price or previously undisclosed allowances
•    Purchase price is different to that in the lender's instructions
•    The client does not want you to tell the lender something

 If you have been a victim of mortgage fraud, call Gerard Quirke on 07983 565690.