Mortgage Fraud – Criminals are increasingly exploiting 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

Individual purchasers can commit mortgage fraud by obtaining a higher mortgage than they are entitled to by providing untrue or misleading information or failing to disclose required information. This may include providing correct information about:




-Other debt obligations

-The sources of funds other than the mortgage for the purchase

-The value of the property

-The price to be paid and whether any payments have been, or will be made, directly between the seller and the purchaser.

Large scale mortgage fraud is usually more sophisticated and involves several properties. It may be committed by criminal groups or individuals, referred to hereon as fraudsters. The buy-to-let market is particularly vulnerable to mortgage fraud, whether through new-build apartment complexes or large scale renovation projects. Occasionally commercial properties will be involved. The common steps are:

– The nominated purchasers taking out the mortgage often have no beneficial interest in the property, and may even be fictitious.

– The property value is inflated and the mortgage will be sought for the full inflated valuation.

– Mortgage payments are often not met and the properties are allowed to deteriorate or are used for other criminal or fraudulent activities, including drug production, unlicensed gambling and prostitution.

– When the bank seeks payment of the mortgage, the fraudsters raise mortgages with another bank through further fictitious purchasers and effectively sell the property back to themselves, but at an even greater leveraged valuation.

– Because the second mortgage is inflated, the first mortgage and arrears are paid off leaving a substantial profit. This may be repeated many times.

– Eventually a bank forecloses on the property, only to find it in disrepair and worth significantly less than the current mortgage and its arrears.

Sometimes fraud is achieved by selling the property between related private companies, rather than between fictitious individuals. The transactions will involve inflated values, and will not be at arm’s length. Increasingly, off-shore companies are being used, with the property sold several times within the group before approaching a lender for the mortgage at an inflated value.

Solicitors who find themselves caught up in mortgage fraud are not active participants, but unwitting third parties who are used by the perpetrators of fraud. A lack of awareness or intent is no defence. The extension of the definition of fraud in the Fraud Act 2006 and the UK’s anti-money laundering regime can mean that a solicitor will be found criminally liable if their client commits mortgage fraud, even if they are unaware of the fraud.

The NI Law Society’s anti-money laundering practice note should be a good starting point for all Solicitors to guard against mortgage fraud. The requirements in the note will help guard against mortgage fraud such as:

– Endeavouring to verify the identity of the client; and

– Where the client never meets the solicitor face to face, carrying out enhanced due diligence.

Further steps can be taken by checking the bona fides of other professional parties involved in the transaction; and checking that documents are fully completed before signing and that registration with the Land Registry is completed in a timely manner. (Law Society of Northern Ireland)

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