Mortgage Fraud

 Mortgage fraud in residential conveyancing is not limited to large commercial schemes. It can arise in very ordinary house purchases, sales and remortgages. It usually involves someone obtaining a mortgage, or a larger mortgage, by giving false or misleading information to the lender. That might relate to income, debts, the real purchase price, the source of the deposit or who will actually own or live in the property.

For conveyancers, this risk sits at the heart of day to day work. Regulators expect firms to recognise that property work is a major target for fraud and money laundering. It is therefore essential to understand how mortgage fraud appears in practice and how to identify warning signs at the earliest possible stage.

How mortgage fraud appears in residential work

In a typical residential transaction mortgage fraud often looks deceptively simple. A buyer may exaggerate their income or hide other financial commitments in order to pass affordability checks. A broker might suggest that the client can raise their income slightly on paper and that nobody will query it. A client might describe a property as their main home when the genuine intention is to use it as a buy to let investment.

Another common pattern is the manipulation of the declared purchase price and deposit. For example, a developer might quietly agree to give part of the deposit back to the buyer on completion, or to provide a large cash back payment or other incentive, but ask that this is not mentioned to the lender or recorded in the contract. On the surface the lender believes that the buyer is putting in a genuine deposit and that the full price reflects real market value, when in truth the buyer has far less equity and the property may not be worth the stated figure.

More organised schemes involve rapid resales at inflated prices. A property is bought at market value, then very quickly sold on to a connected party at a much higher price with the assistance of an inflated valuation. The lender lends against the new higher figure and is badly exposed when the true value emerges.

Identity and title fraud is another serious pattern. A criminal may obtain enough information to impersonate a genuine owner and then attempt to sell or remortgage the property. The conveyancer receives what appears to be a routine instruction from a registered proprietor, complete with convincing identification. If the transaction completes, the mortgage advance or sale proceeds are sent to an account controlled by the criminal and the real owner often finds out only when demands for payment arrive or when they discover that their property has apparently been sold.

Practical indicators for conveyancers

For conveyancers the key is to cultivate a healthy level of professional scepticism and to use the information already available in the file to test whether the narrative fits. The following points can often help to reveal problems early.

First, pay close attention to identification and client due diligence. Scrutinise all identity documents carefully. Look for inconsistencies in names, dates of birth, addresses and photographs. Check whether the client appears on the electoral roll at the address they have given. If identification documents are very recently issued, appear damaged or altered, or are inconsistent with previous documents, that is a reason to probe further. Where you are acting on a remortgage or sale of a property that is mortgage free and the client is not in regular occupation, apply extra caution and consider whether the pattern of facts could be consistent with impersonation.

Second, examine the mortgage offer carefully and compare it with the contract and with what the client has told you. If the mortgage offer states that the property is to be the main residence but the client has spoken freely about letting it out, or currently lives far away with no clear plan to move, that discrepancy must be resolved. If the mortgage is a buy to let product but the client appears to be moving into the property as their only home, you will need a clear and credible explanation and you may need to contact the lender.

Third, interrogate the source of funds and the source of wealth. Do not accept vague statements such as “savings” without a clear paper trail. Ask for bank statements that show the build up of the deposit. Where funds have arrived recently in a lump sum, ask where they came from and obtain evidence, for example completion statements for prior sales or inheritance documentation. If the seller or a developer is contributing to the deposit or providing any form of incentive, insist that this is fully documented and disclosed to the lender. If a client or third party resists this or tells you that the lender does not need to know, that is a serious warning sign.

Fourth, look at the price and timing in context. Check recent sales of comparable properties where possible, using publicly available data and any valuation material in the file. If the price appears significantly higher than similar properties nearby without a clear reason, explore this further. Be particularly cautious where a property has changed hands very recently and is now being sold again at a much higher price, or where there is a pattern of connected parties in the chain.

Fifth, observe behaviour and communication patterns. A client who is overly keen to rush matters without a clear reason, who refuses to meet in person or by video, or who gives very short answers to detailed questions may justify more probing. Where a third party appears to be directing the client, provides most of the information and presses hard for completion, take that seriously. Make sure you always know who your client really is and who is giving instructions.

Practical steps to strengthen detection

In day to day practice conveyancers can take several concrete steps to make the identification of mortgage fraud more effective.

It helps to embed clear internal guidance and training so that all staff understand common fraud typologies and the red flags that go with them. 

Regular case study discussions, for example reviewing recent industry cases where mortgage fraud has occurred, can help fee earners to recognise similar patterns in their own matters.

Standardised checklists can be valuable, provided they are used intelligently rather than mechanically. For instance, a checklist might remind the conveyancer to compare the mortgage offer, the contract, the replies to enquiries and the information given at the client care stage, and to note any inconsistencies. Another checklist could focus on identification and source of funds, prompting the fee earner to record not just what documents were seen but whether anything about them seemed unusual.

File notes are important. Where something gives you cause to question the transaction, make a clear record of what you noticed, what questions you asked and how the client responded. This assists both in real time decision making and in demonstrating to regulators, lenders or insurers that you approached the matter with appropriate care.

When a concern arises, do not ignore it. Ask additional questions, request further documents and, where necessary, escalate internally to a supervisor or compliance officer. Where the concern relates to the accuracy of information given to a lender, consider whether you need to contact the lender directly for clarification, bearing in mind your duties of confidentiality and any applicable guidance. If the concern relates to possible criminal conduct or to the proceeds of crime, consider whether it is necessary to submit a suspicious activity report and follow your firm’s money laundering procedures.

Technology can also help. Many firms now use electronic verification systems that check identity documents against databases and confirm whether a document has been reported lost or stolen. Fraud screening tools can cross check client information against known fraud databases. These tools do not remove the need for human judgement but they can support it and sometimes reveal risks that would not otherwise be apparent.

Finally, cultivate a culture in which conveyancers feel able to slow down or refuse to act in cases that do not feel right. Time pressure and commercial expectations can make it tempting to push concerns aside in order to meet a completion date. It is important to remember that the consequences of completing a fraudulent transaction can be severe for clients, lenders and the firm itself. It is better to lose a transaction than to be drawn into a mortgage fraud.

Conclusion

Mortgage fraud in residential conveyancing often begins with what is presented as a small or harmless misrepresentation, such as a slightly overstated income figure or an undisclosed incentive. In more serious cases it involves sophisticated identity theft and organised criminal activity. In every case, the conveyancer is on the front line.

By understanding how mortgage fraud works in practice, by watching for inconsistencies and unusual features, and by asking firm and well directed questions, conveyancers can play a major role in preventing and detecting this type of fraud. That protects lenders, buyers, sellers and ultimately the integrity of the property market, and it also protects the conveyancing firm and the individual fee earner from the serious professional and legal consequences that follow when mortgage fraud is allowed to go unchecked.