While it is not reported as often as other types of fraud, Property Fraud is becoming more prevalent, posing an increased threat to property owners, investors and lenders alike. Property fraud takes a variety of forms including the use of stolen identities to make changes to land registry deeds, scamming potential buyers or making falsified applications for mortgages. While these instances of fraud are harmful to the individuals directly affected by the scam or identity theft, the prevalence of property fraud also impacts the property market as a whole, by reducing the overall trust in the system.
Unfortunately, the general public are often unaware of the existence of property fraud, with other types of fraud given greater prominence in the media spotlight. One rare example that was reported in the media dates back to the autumn of 2021, when a Luton based homeowner discovered that his house had been sold without his knowledge by someone using his driver’s license to impersonate him. In a follow-up article published towards the end of last year, the BBC discovered that the Land Registry had paid out nearly £7m to 598 property fraud claims in 2021-22, which highlights the severity of the situation.
Property Fraud Risks
As in other more publicised cases of fraud, there are a number of ways property fraud can be committed. Similarly, there are certain properties that are more at risk than others. The following types of property all face a higher risk of being a target of property fraud:
Vacant properties
Whether it is a rental property that is currently un-tenanted, or the homeowner lives elsewhere, vacant properties are more at risk than those that are occupied.
Rental properties especially with landlords who live abroad
Related to the above, rental properties are often at greater risk of being the target of fraud, mostly because the owner is often not present. This risk increases if the landlord lives abroad, as it is then more difficult for them to keep track of what is happening with their property.
High value properties
Criminals who commit fraud are always out to make as much as they can, which makes high-value properties a prime target.
Unencumbered properties
Where a property is owned outright, the lack of additional lender checks makes it easier to fraudulently transfer the property’s deeds.
Spotting Property Fraud
It is not always easy to spot fraud, but there are some instances when red flags should start popping up.
In order to commit fraud, criminals will use any means available to them, but commonly property fraud includes a stolen identity. This could take the form of the criminal pretending to be a buyer or tenant in order to gain information about or access to the property in the first place. They might also pretend to be the homeowner falsely seeking to sell the property or they may be posing as the landlord in order to defraud existing or potential tenants.
Phishing and Spear-Phishing attacks on estate agents, solicitors and lenders also put buyers, sellers and landlords at risk. These can then be used to intercept deposits using fake bank accounts or scam those in the purchase or rental process in other ways.
While the above can be hard to spot, requiring vigilance from all parties involved in the process of buying, selling or renting property, there are some more obvious indicators of potentially fraudulent activities:
- proceeds of a sale being transferred abroad;
- the need for a quick sale;
- an overly inflated or undervalued sale price, without a plausible reason.
Mortgage Fraud
Lenders especially need to be vigilant when it comes to mortgage fraud, which again comes in a variety of forms. Mortgage fraud not only affects homeowners and buyers, although the impact on them can be significant, but also has serious consequences for the lender, both in terms of reputational damage as well as potentially unrecoverable financial losses.
Lenders who are taking over a property are therefore advised to ensure they register a restriction against the title of the property. Restrictions registered against the deeds can help lenders and homeowners alike, as they stop the Land Registry from registering a sale or mortgage against the property without certification from a conveyancer that the owner, or the borrower, made the application.
How to mitigate the risk
In addition to registering a restriction against the title of the property, property owners can register for the HM Land Registry’s Property Alert service. This free service alerts property owners when certain actions, such as a major application is made against the title of their property. The alert will include possible actions to take if the application was not made by the property owner. This can be especially helpful for owners who live abroad or have multiple properties.
This service is also useful to protect vulnerable family members against fraud, as close relatives can sign up to the service for properties owned by ageing parents or other vulnerable members of the family, adding a layer of protection for those who might otherwise be more at risk.
In terms of lenders, estate agents and solicitors, carrying out the necessary ID checks with all due diligence is vital to help protect homeowners, buyers and their own interests. Being aware of the possible risks and challenging anything that could be a red-flag indicator could make all the difference.
In addition to the points already mentioned, alarm bells should start ringing if the client is reluctant to communicate or if changes to bank accounts are made during the course of the transaction.
Unfortunately, it is unlikely that property fraud is going away any time soon. As property professionals, we need to learn how to spot the signs, mitigate the risks to our clients and ourselves, and work together to help protect the property industry.