What can solicitors do to reduce mortgage fraud?

Although identity theft by professional fraudsters gets a great deal of attention in the media, the bulk of mortgage frauds involve a friend or relative with convenient access to the certificate of title and/or the property.  There are many actions which lenders can take and are best placed to take to prevent fraud but there is also much that can be done by solicitors.


27 September 2004

The fraudsters

Fraudsters need at least some knowledge of conveyanceing practice to attempt a fraud. The more knowledge they have the more sophisticated will be the fraud. Likely contenders include persons who have worked for finance brokers, property developers, solicitors, licensed conveyances, real-estate agents and registration agents. A key element in spotting fraud is to understand that fraudsters can mimic and emulate normal conveyanceing behavior. A practitioner should not draw comfort from the apparent normality of a transaction. A chat on the telephone with a paralegal who uses all the correct terminology and knows all the correct procedures is no guarantee a transaction is bona fide.

Another area where fraud is least expected but most frequent is within families. A solicitor acting for a borrower should not let their guard down just because they have identified one of the mortgagors satisfactorily. Drug addicts are more than happy to steal from their family and often feel less apprehension in doing so than they would to a stranger. Family members also have inside knowledge of where the Certificate of Title might be kept, copies of birth certificates, when their relatives are overseas and importantly the ability to intercept mail.

Your most powerful tools in detecting fraud

The three most powerful tools in detecting fraud are:

  1. Title searches
  2. Solicitor searches
  3. Driver’s licenses and passports

Title Searches – read and think

A title search can tell you many things. An unencumbered title is particularly inviting to fraudsters as they only need to dupe the incoming mortgagee – not the outgoing mortgagee as well. An unencumbered property is rare, this is because the bulk of mortgages are refinances or purchases, so it prompt a closer look. The edition date on the search will tell you when the last transaction on the property was. If that date was when your borrower turned 7 then you are dealing with John junior and not John senior.

THIS EDITION ISSUED PURSUANT TO S.111 REAL PROPERTY ACT, 1900 is a red flag. It means the Registrar General was satisfied the previous edition lost, mislaid or destroyed. The real owner may have the old edition under their bed while the replacement application was made by the fraudster. Several caveats, especially ones which only go to the interest of one of two or more registered proprietors, is an indication something may be afoot. This is because caveats often indicate last resort borrowing. People in desperate straights often borrow without their co-proprietor’s permission and then forge their signature to increase those borrowings.

Solicitor searches – verify who you are dealing with

You can trust other solicitors but the question is, are you dealing with another solicitor? The problem is that many practices create their letterhead using word processors and are easily forged. The name on the letterhead may look familiar, but is it the real McCoy? The matter is easily put to rest by comparing the contact details on the letterhead with those on the Law Society Database.

Driver’s licenses and passports

If you are acting for a borrower insist on sighting their original driver’s license or passport. They are hard to forge and both have a photo. Credit cards and Medicare cards are of limited use, all they prove is that a fraudster has access to the registered proprietor’s wallet as well as their certificate of title. Although there are stories of perfectly forged licenses and passports your fraudster probably does not have access to them. More likely she will try to fob you off with a relative’s passport or driver’s license. In this regard beware of names which are not quite identical to the title search. For example; George Frederick Jones on the driver’s license and Frederick Jones on the title search. In this case you should search the original transfer and compare it to the dates and signature on the driver’s license.

Watch out for elderly clients who claim they have neither a passport nor driver’s license. Just because someone is elderly does not mean they are above impersonating another person for money. The usual scenario is the real registered proprietor is in a retirement home and their child, niece, nephew or grandchild enlists the assistance of an older friend as imposter. To satisfy yourself you may need to be creative, for example the author has on occasion asked to see wedding photos (where one spouse was able to produce photo identification but the other was not).

Beware of urgency

Most frauds are carried out in a rush to increase the chances of success. If a settlement is urgent ask why it is urgent. Then follow up and verify what you have been told. If there is a notice to complete on another property ask to see the notice. Call the solicitor who issued it. The fraudster might be pushing for a quick settlement because she is worried your correspondence will be received by the real registered proprietor. Increase the chances of this by sending letters to the security address by express post.

Case study 1 – this mortgagee solicitor broke all the rules

The fraudster was a clerk at a suburban law firm acting for the registered proprietor. The registered proprietor bought the land unencumbered as an investment property. The fraudster intercepted the Certificate of Title when it came back from the LPI. The fraudster approached a short term finance lender. The lender’s valuer inspected the vacant property after the fraudster gave access using a copy of the keys collected on settlement. A large city firm acted for the lender. The fraudster used phony numbers and a fake letterhead to purport to be a solicitor acting for the borrower. The lender’s solicitor did not:

  1. Verify the identity and contact details of the solicitor by using a solicitor the Law Society Database.
  2. Use extra care when the title search revealed the land was unencumbered.
  3. Use extra care when the title search revealed the latest Certificate of Title was issued pursuant to s. 111 of the Real Property Act.
  4. Check the edition number of the Certificate of Title proffered at settlement.

Because the security was unencumbered the settlement took place at the city firm’s office. Had it been encumbered the city firm’s registration agents would have been used and spotted the difference in the edition number.

Case study 2 – this mortgagor solicitor did an appalling thing

The loan was a low-doc and not covered by the consumer credit code. These loans are particularly dangerous because the lender has done no due diligence in verifying the borrower has a job, clear credit etc. Lenders usually insist on independent legal advice. This puts the onus of positively identifying a borrower onto the borrower’s solicitor.  The security was owned by a drug addicted fraudster in his 30’s (as to 1%) and his father in his 80’s (as to 99%).

On the day of the appointment only the fraudster showed up. He said he would take the papers to his father to sign because his father was too sick to travel. The solicitor poured cold water on that. The fraudster then said, “sign me up so I can go back to work and I will get my father to come in later”. The solicitor agreed to this and witnessed the fraudster’s signature. He then asked a paralegal to put the security documents back on file until the father came in. Two weeks passed and while the solicitor was on leave the fraudster came back and asked for the mortgage documents. He said he would take them to his father’s solicitor for witnessing as his father was too ill to come into the city. The paralegal consulted a junior solicitor who gave authority for this course of action.

The fraudster forged his father’s signature and returned the documents. Opposite each of the forged signatures was the genuine signature of the solicitor purportedly witnessing both the genuine and forged signatures. A paralegal sent the documents to the lender and the loan settled.

The future

There are worrying trends overseas where identity theft is being used to transfer properties using forged discharges and then re-mortgage them for higher amounts, all without the real owner being the wiser. For an insight into this practice see http://www.lawpro.ca/LawPRO/identity_fraud.pdf.

Matthew Bransgrove is the principal of Bransgroves Mortgage Solicitors. He has presented four papers on mortgage law for the College of Law “Enforcement of Mortgages” 19 June 2003, “Indefeasibility of Mortgage Title and Exceptions to it” 17 November 2003, “Drafting Mortgages in NSW” 17 March 2004, “Mortgage Priorities” 15 June 2004. Copies of these papers can be purchased from the College of Law.

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