Thursday, November 26, 2015

How To Identify Mortgage Fraud

At the ASTL Conference this year, one of the main topics discussed was mortgage fraud, how to identify it and prevent it from infiltrating into your business.

For bridging lenders, this has always been a serious issue that we have to scrutinise, ensuring it doesn’t happen to us. Unfortunately, fraud is rife in the property world. We have provided details on what to look for and how to address it, if you come across it in one of your loans.

As defined by the Law Society:

• Criminals will exploit weaknesses in lending and conveyance systems to gain illegitimate financial advantage from the UK property market.
• This can be either: opportunistic action using misrepresentation of income to obtain greater loans than a person is entitled to
• Organised crime syndicates using false identities and failing to make any mortgage repayments where the loan is serviced. Mortgage fraud criminals often work in pairs with one posing as the Borrower and the other imposter posing as the Seller.

Where a solicitor is involved in a property transaction in the UK, they can find themselves criminally liable if their client commits mortgage fraud, because of the extension of the definition of fraud in the Fraud Act 2006 and the anti-money laundering regime in the UK. You can be liable even if you were not aware of the fraud or actively participated in it.

Overall, fraud in the financial services sector fell by more than half in 2014 with mortgage fraud and money laundering representing 74% of the total value of fraud in the sector. Mortgage fraud alone represented 8% of all fraudulent activity with a £57 million loss.

The main targets of fraud that can take place are:
• ID fraud
• Income fraud
• Occupancy fraud
• Valuation fraud, where the lender does not instruct his own valuer and the borrower is allowed to dictate who carries out the valuation.
• You will need to address how you combat fraud in a market where a broker is pushing you to fund a loan which include short timescales
• Claims that the borrower is legitimate. In most cases the broker will be right but in the few cases, where even they have had the wool pulled over their eyes, the main ways to address this is purely through prevention.

Minimise Fraud Risk:

Incorporate a risk assessment programme at your workplace: what are the triggers, what information do you need that you can’t seem to get access to, does this raise a red flag, has the client been turned down elsewhere, why? Has the borrower's solicitor acted for the borrower previously in any other transactions? Question everything. Read the incoming valuations and work with your credit departments (if you have them) to pin point and again, question anything that comes back looking less favourable than you thought.

If you train your full team to be aware as standard practice, you will help spot something that triggers a warning, earlier in the process. This includes your BDM’s, your assets managers, credit control teams and your underwriters. The more eyes looking at a prospect, the less chance of fraud and financial casualty. As a lawyer, it’s then your responsibility to contact the broker with any suspect information revealed or indeed make the broker aware of any withholding of information that is crucial to the transaction. Not only will your actions show the broker that your processes are in place, but also that you have an obligation to your company to not let mortgage fraud slip through the net.

Prevention is always better than a cure. It can take a long time and prove to be very expensive if you have to rectify a fraud issue that should never have occurred in the first place.
Gaynor McCormick is the In House Legal Director for Mint Bridging, the UK’s only family run short term bridging & re-bridging loan lender. Her role is to conduct the legal process from start to finish. She has over 15 years expertise in the corporate and commercial property industry. Past employers include Hammonds, Eversheds and DLA.

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