How To Tackle Property Fraud

Property fraud is on the up, and recent cases highlight the importance of vigilance by solicitors, especially when dealing with vulnerable clients. Jayne Elkins and Karen McGinley investigate.

'Generally, there is less risk of fraud with registered land than with unregistered property, as although the registers are open, there are various steps a registered proprietor can take to protect themselves and the Land Registry does act as something of a safety net:

Property fraud is a hot topic and incidents of fraud are on the increase. Why is this? Arguably, it is largely as a result of a series of changes in Land Registry practice as the majority of property in England and Wales is registered land.

Firstly, since 1990 the Land Registry has been open to the public — anyone can search and find out who owns a property and what, if any, mortgages there may be over it. Secondly, in October 2003, the Land Registry dispensed with traditional paper land certificates, which were watermarked and had to be produced to the Land Registry on any dealing. Now the Land Registry simply provides copies of the registers on completion of a registration and official copies of a title can be requested by anybody at any time. Lastly, and most recently, the Land Registry have now provided for applications for registration of dealings with registered land to be made electronically, with only scanned copies of the relevant deeds, and although a solicitor has to certify that they are holding 'wet ink' originals, there is no requirement for original deeds to be sent to the Land Registry.

Although registered land is probably less at risk of fraud than if it was unregistered, these changes have undoubtedly facilitated the registration of fraudulent dealings and will continue to do so if property professionals are not vigilant.

Recent examples of property fraud

Nearly all property fraud involves dishonest parties posing as property professionals — often posing as bogus solicitors through bogus law firms, or sometimes through bogus branch offices of bona fide law firms. Figures for 2014 show that there were around 186 alerters on the Solicitors Regulation Authority (SRA) website of incidents of the misuse of names of bona fide solicitors or firms. The firms whose names were being used included the complete spectrum, from magic circle firms to small high street practices. A number of frauds also involve 'rogue' property professionals.

Recent cases give examples of the sorts of fraud being perpetrated in the property industry.

Swift 1st Ltd v Chief Land Registrar [2014]

Although this is a 2014 case, the transaction in question took place back in 2006. It did not involve solicitors, but a lender (Swift) who lent money to a borrower, who then executed a legal charge over the registered property that it purported to own. The charge was registered and the fraud only came to light when the borrower failed to make the payments and the lender tried to enforce its security by taking default possession proceedings. At this point, the true registered proprietor (who had been oblivious to these shenanigans) had to take action to have the charge set aside and the register rectified.

The case itself concerned whether Swift was entitled to an indemnity from the Land Registry due to having suffered a loss as a result of the rectification of title Swift got its indemnity, but was lucky not to have had it reduced due to its contributory lack of care. As something of a cautionary tale, it is perhaps worth just listing Swift's failings:

no conveyancers were instructed; the loan transaction was conducted solely over the telephone; there was no physical inspection of the property; there was no face-to-face meeting took place with the borrower; no copy passports were seen; and a discrepancy between the borrower's signature on...