In the modern age of property transactions, what is the biggest risk to mortgage lenders and what impact does this have on their relationship with the conveyancing profession?
In a recent survey, conducted by TM Group, 28 members of the Council of Mortgage Lenders (CML) indicated where they thought the biggest risks originated from. More importantly they were asked what is the impact of these risks and how can they best be managed.
Mortgage fraud is one of the most significant risks to lenders. In its 2013 Annual Fraud Indicator report, the National Fraud Authority estimated the annual loss attributed to mortgage fraud at £1bn and not only can financial crime prove extremely expensive for a lender but it can also pose a threat to their credibility with the public.
Steps have been taken by both the CML and FSA to reduce the risk of mortgage fraud, but in 2013, The Financial Times reported that mortgage fraud is rifer than ever before. Indeed, it was revealed in a report by Experian that attempted mortgage fraud rose to 38 cases in every 10,000 applications in 2012, up from 35 per 10,000 in 2011.
Interestingly, typically between 65-75% of PII claims against solicitors relate to property transactions and it’s certainly the case that conveyancing is amongst the riskiest sectors within the legal profession.
Negligence can come in different forms however, as pressure on residential conveyancing fees has seen a tendency for conveyancing work to become increasingly driven by processes and be at risk of commoditisation.
The profession has, at the same time, been targeted to a greater extent than ever before by petty fraudsters and organised criminal gangs who have spotted the opportunity for rich pickings in property transactions. Indeed, it was reported recently that the SRA received 549 reports of bogus firms in 2013, a 57 percent increase on the number from 2012. So with criminal activity on the rise and with strains on the time and resources available to law firms, it’s increasingly vital to carry out thorough checks when processing property transactions.
The issue for solicitors is that fraud will not always be immediately apparent. Fraudsters will often use at least one professional within the transaction whether that professional is involved or not but, as the Law Society explains in their anti-‘mortgage fraud’ guidance note, “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 in if you have not applied appropriate due diligence.”
A recent case evidencing this was Santander UK v RA Legal Solicitors in which now-defunct law firm RA Legal were found to be negligent in unwittingly paying £150,000 of Santander’s money to a bogus law firm – It is therefore increasingly vital to check the actual solicitor you’re dealing with, even if you are aware of the firm. There have been numerous reports that conveyancers or support staff are targeted at 3pm on a Friday afternoon by the fraudsters. Once the crime has been committed and the client re-imbursed by the PI insurer this will have a dramatic impact on either the law firms PI premium or the firm will face litigation.
A modern trend emerging is for fraudsters to invent fake branches for a real law firm – even going so far as to clone their website - in order to trick you into handing over your client’s money. A quick check of the Law Society’s website is no longer sufficient and doesn’t take this threat into account.
A significant number of lenders are keen on improving the panel registration process which has been a hot topic in recent years. Most lenders will dramatically reduce their panels down to help solve this issue.
The lenders have largely controlled the surveyors by implementing Quest in all transactions. Is there a similar solution for conveyancers?
Controlling processes and procedures, automating the CML handbook part 1 and 2 will significantly reduce errors.
The housing market, however, remains increasingly buoyant. Transactions are on the increase but there remains a shortage of good quality conveyancers. The only solution to deal with these increasing volumes is a processed work flow solution.
Most lenders consider solicitor negligence to be the biggest type of fraud risk to their business so investing in workflow technology with built in controls is essential to remain on lender panels. Cybercrime is a growing trend and the only way to avoid the fraudsters will be extra diligence and technology.
360 Legal Group