Fraud alert! (and a cautionary tale)

Recently I joined the Professional Practice Department following 20 or so years in private practice, involved mainly in residential and commercial conveyancing. Over the years I have read numerous articles in the Journal relating to fraud and anti-money laundering, with varying degrees of interest and attention. Landing on the other side of the fence has been an eye-opener on the extent to which the profession is currently being targeted by serious criminals.

Recent scams aim to procure large sums of money from the sale of properties by individuals who are not the owners, or from mortgages raised (or not redeemed) by fraudulent means. As a result individual lawyers are being implicated in criminal activities. Furthermore the whole profession is affected, due to claims on the Master Policy. The Law Society of Scotland and other agencies are doing what they can by putting in place a number of counter measures. However, many of these scams could be prevented if practitioners were more aware of what to look out for and what to do. Here are 10 situations where you should be wary.

1. Sales following a recent discharge. If you didn’t prepare the discharge you should check with the lender to make sure the loan has actually been redeemed.

2. Back-to-back transactions. Is there a genuine explanation? Of course the CML handbook will require you to tell the lender if the seller’s title has not been registered for at least six months.

3. Schemes designed to enhance loan-to-value. These are often used by new-build developers as a marketing tool and can be quite legitimate. However they also originate from intermediaries with the aim of raising the level of the loan to 100% or more of the property’s value. They can be complicated and may involve a “finder’s fee”. You should ensure (first) that you understand how the scheme works, and (secondly) that you report it to the lender. If you suspect fraudulent intent, remember your obligations to report to SOCA.

4. Bogus sellers. Make sure that your client is really the owner and has not stolen someone else’s identity! A home visit is no longer a sufficient means of primary ID; you really need to see a passport or equivalent. Also check that the client’s date of birth is consistent with appearance!

5. Bogus purchasers. It is absolutely essential to identify a client properly before an offer is submitted. Otherwise you risk exposure to serious criminal activity. You should also advise selling clients not to accept diverted mail for the purchaser before the date of entry.

6. Stand-alone securities. If you are preparing a security outwith a purchase, be wary if the client requests a specific recording date (as opposed to the date of drawdown).

7. Stand-alone discharges. If you are asked to record a discharge produced by the owner, check first with the lender that the loan has actually been redeemed.

8. Prearranged private sales. You should check that the transaction is genuine and not on unusual terms (particularly price).

9. Sales with low-level marketing activity. For example the seller requests no “For Sale” signs, restricted viewing or no local advertising. Is there a good reason for this?

10. Third party involvement in funds. These can be on either side of the transaction, e.g. contributions to the price from relatives, or requests to pay sale proceeds to third parties. The former has money-laundering and conflict of interest implications. The latter should always be resisted.