Property fraud prevention

Property fraud refers to deceptive practices within property transactions designed to unlawfully profit from property sales, purchases, or ownership. Common types of fraud include identity theft, where fraudsters impersonate the legitimate owner to sell property illegally, and payment diversion, which involves misdirecting funds meant to be transferred to conveyancing solicitors or the property seller.

The legal implications of such activities are significant, with potential losses not only to individual buyers or sellers but also to the integrity of the broader property market.

In Scotland, the Registers of Scotland are crucial in overseeing property registrations and preventing fraud, yet fraudulent property transactions remain relatively high. Therefore, property buyers and sellers need to be aware of what to look for to safeguard their assets effectively, namely:.

• Common types of property fraud
• Ways of recognising signs of property fraud
• Actions to take if you are, or suspect you might be, a victim of property fraud
• How to protect your property.

Common types of property fraud

Property fraud covers a wide range of deceptive practices aimed at exploiting the complexities of property transactions. Common methods include:

• Conveyancing or payment diversion fraud, where communications are intercepted to reroute funds
• Property title fraud, involving the fraudulent transfer of ownership
• Mortgage fraud, characterised by falsified loan applications
• Future development fraud, where investors are misled about the potential of undeveloped land

The variation in fraud methods reflects the adaptability of fraudsters to different aspects of property dealings – from the manipulation of legal and financial documentation to the exploitation of digital communication channels. Understanding the nuances and signs of these scams is crucial for safeguarding one's investments in the property market.

Conveyancing or payment diversion fraud

Conveyancing or payment diversion fraud is a particularly insidious form of property fraud that targets the financial transactions integral to property sales. During the conveyancing process, fraudsters may intercept communications between buyers and their conveyancing solicitors to misdirect the transfer of funds. Typically, the fraudster will impersonate the solicitor or other parties involved via spoofed emails, falsified letterheads, or compromised communication channels, advising the buyer of a last-minute change in bank details.

As transactions in property sales often involve large sums, the impact of this fraud can be substantial. To counteract this threat, it is essential for buyers to verify any change in payment details directly with their solicitor, ideally through a previously established and secure communication method. The Registers of Scotland, along with comprehensive legislation such as the Land Registration Act 2012, play critical roles in advocating for transparency and security in property transactions to prevent such fraudulent activities. However, vigilance and strict adherence to verified procedures remain the best defence against fraud.

Fraudsters often target properties with specific vulnerabilities:

• Buy-to-let properties and those owned by property developers, where frequent transactions can obscure fraudulent activities.
• Properties where the owner is absent for much of the year, provide opportunities for unnoticed fraud.
• Homes where the owner is in long-term residential care, lessening direct oversight of property matters.
• Estates held in trust after an owner's death, where reduced monitoring may occur.
• Properties without mortgages may lack regular financial scrutiny, making them attractive targets for fraud.

Property title fraud

Property title fraud is a severe form of estate deception where fraudsters manipulate property ownership records to illegally claim ownership or sell someone else's property. This type of fraud typically involves the use of forged documents or stolen identity information to alter the title registry. Perpetrators may pose as the legitimate owner using fake ID documents to transfer property into their name or secure loans against it without the knowledge of the rightful owner.

The consequences of property title fraud can be devastating, often leaving the true owners entangled in lengthy legal disputes to reclaim their property rights. To combat this, it's crucial for property owners to regularly check their property records through the Registers of Scotland or the relevant land registry website. This vigilance helps ensure that no unauthorised changes have been made to their title details. Additionally, owners can take preventive measures such as registering for alerts from land registry services, which notify them of any applications or changes made against their property.

Legal precedent

In the notable case of Patel v Freddy’s Ltd & Ors [2006] EWCA Civ 385, the UK Court of Appeal dealt with a significant instance of property title fraud where fraudsters used forged documents to unlawfully transfer the ownership of Mr. Patel's property to Freddy’s Ltd without his consent. The fraud came to light when Mr. Patel noticed discrepancies in his property documents and subsequently challenged the legitimacy of the transaction in court.

The Court of Appeal ruled in favour of Mr. Patel, establishing that the transfer was void ab initio, meaning it was invalid from the beginning due to the forged documentation. This case underlined the importance of thorough document verification and identity checks in property transactions, highlighting how critical diligence is for protecting legal ownership against sophisticated fraud schemes. It reinforced the protection afforded to rightful owners under the law, emphasising the need for potential buyers and property professionals to engage in rigorous due diligence to detect and prevent title fraud.

Mortgage fraud

Mortgage fraud is a deceptive practice in property transactions where individuals or entities misrepresent, omit, or falsify information in mortgage applications to secure a loan or a more favourable loan term under false pretences. This type of fraud can be committed by potential homebuyers, investors, or industry professionals, including estate agents, appraisers, and mortgage brokers.

The fraud typically involves inflating an applicant's income, assets, or employment history to meet the loan qualification criteria or manipulating property valuations to obtain a higher loan amount than what the property is truly worth. In more complex schemes, groups of conspirators may engage in "straw buyer" scams where an individual uses another person's information to apply for a loan, or in "flip schemes," where properties are bought and quickly resold at artificially inflated prices based on fraudulent appraisals. Homebuyers and lenders alike are encouraged to rigorously verify all details in mortgage applications and to use licensed professionals for property assessments to guard against these fraudulent activities.

Future development fraud

Future development fraud is a deceptive practice that targets potential investors with the allure of high returns from property investments. Often, these schemes involve the sale of properties not yet built or offered at significant discounts. Investors, tempted by the prospect of quick and substantial gains, may invest heavily, sometimes channelling their entire savings into these ventures.

However, the reality behind such offers can be starkly different. The land involved is frequently agricultural or derelict, generally unsuitable for the promised development. Many times, these plots are bound to have planning permission refused, rendering them nearly worthless for the purposes sold. As a result, investors can find themselves facing total financial loss, with no feasible way to recoup their investments.

Another common variant of this fraud is the buy-to-let scam, where companies claim to source, renovate, and manage properties while promising solid returns from rental income. In reality, these properties may be nearly dilapidated with little-to-no chance of securing tenants, leading to further financial detriment for the investor. Such scams highlight the need for thorough due diligence and the importance of scepticism towards offers that appear too good to be true.

Recognising the signs of property fraud

Recognising the signs of property fraud is essential for anyone involved in property transactions. Here are the most common red flags that should raise your suspicions:

1. Urgent requests for financial transactions: Be wary of any pressure to transfer funds quickly, especially if these requests come with high-stress tactics or deadlines that seem designed to rush you into action.
2. Last-minute changes in payment details: Any changes to bank details at the eleventh hour, particularly just before a significant payment is due, should be approached with extreme caution.
3. Unusually low property prices: Properties priced well below market value can be a lure used by fraudsters to attract quick interest and prompt a hasty decision.
4. Discrepancies in property documents or listings: Mismatches or errors in property listings, titles, or ownership documents can be indicators of fraudulent activity. Scrutinising these documents for any inconsistencies is crucial.
5. Changes in contact details: Sudden changes in the contact information of solicitors, estate agents, or sellers during the transaction process should prompt further verification.

To protect oneself from potential fraud, it is critical to verify the legitimacy of all parties involved in the transaction. This includes:

• Verifying conveyancing solicitor and estate agent credentials: Always confirm that the conveyancing solicitors and estate agents you are dealing with are registered with appropriate legal and professional bodies (The Law Society of Scotland, etc.).
• Scrutinising utility bills and ID documentation: Ensure that all utility bills and identity documents provided by sellers or landlords align with official records and are not falsified.
• Direct communication: Whenever there are doubts, especially regarding payment changes, contact the conveyancing solicitor or estate agent directly using previously verified contact details, rather than new or recently provided ones.

Adopting these safety measures can significantly reduce the risk of falling victim to property fraud.

Protections against property fraud

Protecting against property fraud involves both legal safeguards and vigilant practices to ensure the security of real estate transactions:

Legal protections and role of professionals:

The Land Registration Act enhances transparency in property transactions, making manipulation by fraudsters more difficult. Licensed conveyancers and solicitors play a critical role, performing rigorous checks and ensuring compliance with the law. Their expertise is vital for spotting potential red flags and preventing fraudulent transactions.

Practical measures to prevent fraud:

1. Verification of identity: Always confirm the identities and bank details of solicitors and agents, especially before transferring funds.
2. Secure transactions: Use secure channels for financial transactions and be wary of any last-minute changes in payment instructions.
3. Property alert services: Sign up for services such as HM Land Registry's free property alert to receive notifications of any applications that could affect your property's status.
4. Restrictive measures on a property title: Apply for a 'Form LL restriction' which requires a conveyancer to certify any change to the property's title, adding an extra layer of security.
5. Regular monitoring: Regularly update your contact details with the land registry and check property records to detect unauthorised changes early.

By employing these strategies, property owners and buyers can bolster their defences against property fraud, ensuring their property transactions are secure.

Actions to take if you've been defrauded

If you suspect you've fallen victim to property fraud, taking immediate and decisive action is crucial to mitigate potential losses and begin the recovery process.

1. Notify your bank: Contact your bank as soon as you detect any fraudulent activity. Provide them with all relevant details and request them to contact the receiving bank to freeze the transferred funds. This can prevent the fraudsters from withdrawing the stolen money.
2. Inform your solicitor and estate agent: Alert your solicitor and estate agent about the fraud. They can take necessary precautions to prevent other clients from being targeted and may provide additional advice or assistance based on their experience and knowledge of the industry.
3. Report to authorities:

• Action fraud: In most of the UK, report the incident to Action Fraud, the national reporting centre for fraud and cybercrime. You can contact them via their website or by calling 0300 123 2040. They can record the crime and provide you with a police crime reference number.
• Local police: If you are in Scotland, directly contact the police by dialling 101. The Scottish police handle fraud reports directly, rather than through Action Fraud.

4. Seek legal help: Consult with a legal advisor who specialises in property law and fraud. They can guide you through the process of potentially recovering your losses and addressing any legal concerns. They may also assist in any civil recovery processes or court actions required to pursue compensation.
5. Document everything: Keep a detailed record of all correspondence and transactions related to the suspected fraud. This documentation will be invaluable in supporting your case during investigations and legal proceedings.
6. Contact fraud prevention bureaus: Notify credit bureaus and fraud prevention agencies. They can monitor your financial records for any further unusual activity and help prevent identity theft if your personal information has been compromised.

By following these steps promptly, you increase your chances of recovering losses and help prevent the fraudsters from targeting others.

Conclusion

Safeguarding against property fraud is essential in securing your assets. If you're seeking guidance or need assistance from a reputable conveyancing solicitor or estate agent, Harper Macleod is here to help. Reach out to our experienced Edinburgh-based team for a consultation or advice.

Resources

• Registers of Scotland - Official information and services on land and property registration in Scotland.
• Action Fraud - The UK's national reporting centre for fraud and cybercrime; useful for reporting fraud and getting advice.
• Law Society of Scotland - Find a solicitor in Scotland or learn more about the legal standards and practices.
• HM Land Registry - For property owners in England and Wales, provides services and alerts related to property and land.
• Property Alert Service by HM Land Registry - A free service to monitor your registered properties and alert you to certain changes.
• The Property Ombudsman - Free, impartial and independent service for resolving disputes between consumers and property agents.
• Citizens Advice - Offers advice and help on what to do if you're a victim of fraud, including property fraud.
• Financial Conduct Authority - Provides information on regulated financial firms that might be involved in property transactions, helping to avoid scams.