Property Fraud & Identity Documents

Property, as with any asset, is subject to the threat posed by unscrupulous parties looking to defraud people or to launder money. Property frauds are increasingly sophisticated and the nature of the attempts are constantly evolving. It is important that individuals are aware of the potential threats.

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Every buyer expects to receive the property they have contracted for and every seller will expect to receive legitimate funds from an incoming buyer. In order to achieve this, parties instructed to facilitate property transactions, such as estate agents, conveyancers and mortgage brokers, are required to consider their client’s circumstances and to adequately perform relevant checks.

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UK Legislation, including The Proceeds of Crime Act 2002, The Serious Organised Crime and Police Act 2005, The Terrorism Act 2000 and the Money Laundering Regulations, requires all companies to perform due diligence to ascertain (so far as they are able) that their clients are bona fide and that any funds being used have been accrued legitimately. To meet these requirements, the identity of clients must be checked.

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Invariably for a property transaction clients will be required to provide their original identity documents (I.D) multiple times at different stages. The estate agent’s will require I.D and proof of deposit on marketing the property or agreeing a sale price, the conveyancers will seek I.D on instruction and a broker will require full disclosure when dealing with any mortgage application. The usual I.D required will include Primary I.D, such as passports and driving licence, and Secondary I.D, such as recent bank statements and utility bills showing proof of address.

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For proof of funds it is usual to provide a bank statement showing the presence of any deposits to be used as well as evidence of how these funds were accrued. Most prudent organisations will not only check the I.D documentation themselves but also perform various electronic checks against national databases, usually via specialist third party companies, to further uncover any potential fraud risks.

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Whilst the majority of transactions will be legitimate, it is important that clients understand that the requirement to produce valid I.D is not simply administrative, but is critical to allow a transaction to proceed and to complete.

Often clients express that the requirement for comprehensive I.D is onerous or invasive, but failure to properly produce documents can have serious consequences including causing delays to transactions, potential fines and even prison sentences for parties involved.

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Parties should be particularly wary when dealing with rapid cash purchase transactions, parties who you do not meet or are resident overseas, and where there are no mortgages involved.

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Some recent cases involving property fraud make for uncomfortable reading and are often cited in conveyancer’s preliminary enquiries raised of sellers.

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In Purrunsing v A’Court (a firm) and another [2016] a house was sold for £470,000 only for it to be discovered that the party purporting to be the seller was in fact a fraudster who had obtained the legitimate owner’s details and provided forged identity documents to their conveyancer. By the time of the discovery of the fraud the sale had completed and the money had already been transferred out of the country, leaving the buyer unable to recover the funds and without the property.  For various reasons both conveyancing firms were held to be liable for failings in this matter.

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Similarly in P&P Property Limited v Owen White & Catlin LLP and Crownvent Limited t/a Winkworth [2016] again an imposter successfully managed to sell a property and make off with the proceeds. The case itself has turned on different issues to that of Purrunsing but nevertheless left the purchaser in the invidious position of not ending up with the property they had contracted to purchase. Unfortunately, these sort of cases are increasingly common.

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For property owners there are steps that can be taken to protect against fraud. The Land Registry provide a free Fraud Alert service (https://propertyalert.landregistry.gov.uk/) which emails alerts when certain activity occurs against property. Owners can also register a restriction on the property title which prevents the transfer without a separate certification by the conveyancer that any application is submitted by the bona fide individual.