The Law Society’s practice note highlights the warning signs of mortgage fraud and outlines how you can protect yourself and your firm from being used to commit mortgage fraud. The following is an extract
What is the issue?
Criminals will exploit weaknesses in lending and conveyancing systems to gain illegitimate financial advantage from the UK property market. This can be either:
- opportunistic action using misrepresentation of income or property value to obtain greater loans than a person is entitled to
- organised crime syndicates overvaluing properties, using false identities and failing to make any mortgage repayments
- A solicitor will be involved in most property transactions undertaken in the UK.
- You can find yourself criminally liable if your 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.
Courts will assume a high level of knowledge and education on your part. They will often be less willing to accept claims that you were unwittingly involved if you have not applied appropriate due diligence.
How does mortgage fraud occur? What is mortgage fraud?
1. Mortgage fraud occurs where individuals defraud a financial institution or private lender through the mortgage process.
2. The definition of fraud in the Fraud Act 2006 covers fraud by false representation and by failure to disclose information where there is a legal duty to disclose.
3. False representations can be made explicitly or implicitly and may occur even where you know only that the representation might be misleading or untrue.
4. The value of a mortgage obtained through fraud is the proceeds of crime.
5. Under the Proceeds of Crime Act 2002, you risk committing a money laundering offence if you acquire, use, have possession of, enter into an arrangement with respect to, or transfer this criminal property.
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This practice note is the Law Society’s view of good practice in this area. It is not legal advice.
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