Friday, 21 November 2008

Tips for avoiding mortgage fraud

In the third part of our series on mortgage fraud, Anthony Riem, a specialist in multi-jurisdictional frauds and asset recovery with PCB Litigation, outlines the warning signs brokers should look for to detect mortgage fraud.

Some of the more obvious warning signs include the following:

  • Documents provided in support of an application such as bank statements, utility bills and passports that appear to be forgeries.

  • Income or employment details which are not supported by documentation supplied by the customer.

  • Inconsistent information provided by the same customer, i.e. various applications made with different incomes/details either to the same lender or lenders within a group.

  • Links with other applicants where fraud is suspected, for example shared addresses, purchases on same development, identical loan amounts etc.

  • Links between different mortgage applicants, for example shared bank accounts, and addresses.
  • Applications cancelled when further information/verification is requested.

The Law Society’s Practice Note on Mortgage Fraud also suggests the following warning signs:

  • The customer or the property being purchased is located a long distance from your firm. If bulk long distance instructions are not in your normal work, you may ask why they chose your firm, especially if they are a new customer.

  • The customer seems unusually uninterested in their purchase. You should look for other warning signs suggesting they are not the real purchaser

  • The seller is a private company or they have recently purchased the property from a private company. You should consider whether the office holders or shareholders of the private company are otherwise connected with the transaction you are undertaking, and whether this is an arms length commercial transaction.

  • The customer does not usually engage in property investment of this scale. You should ask why they are undertaking this new venture and where they are getting the financial backing from.

  • The current owner has owned the property for less than six months. You should ask them to explain why they are selling so quickly.

  • The customer's credit history is shorter than you would expect for their age, when you run a credit check. Fraudsters will often run a fake identity for a few months to give it legitimacy. You should ask your customer about this.
  • There are plans for a sub-sale or back-to-back transactions. You should ask your customer why they are structuring the transaction this way and seek information on the identities of the second purchaser, their solicitor and the lender.
  • The property value has significantly increased in a short period of time out of line with the market in the area.
  • The mortgage is for the full property value. While this is less likely in tighter credit conditions, you should consider it in light of the other warning signs.
  • The seller or developer has provided incentives, allowances or discounts. These may include cash back, free holidays, household fittings, payment of legal fees, help with mortgage repayments or rental guarantees, among others. You should consider whether this information has been properly disclosed to the lender.
  • The deposit is being paid by someone other than the purchaser. You should ask why, where the money is coming from, and whether this information has been properly disclosed to the lender.
  • The purchaser has paid the deposit directly to the seller. You should ask for evidence of the payment and consider whether this information has been properly disclosed to the lender.
  • There is money left over from the mortgage after the purchase price has been paid, and you are asked to pay this money to the account of someone you do not know, or to the introducer. You should ask why, and remember that you must not use your customer account as a mere banking facility.
  • You are asked to enter a price on the title that is greater than you know was paid for the property. You should ask why the prices are different.
What else can a Broker do?

The first and perhaps most important step in combating mortgage fraud is to ensure that you verify the identity of your customers in accordance with the Money Laundering Regulations 2007. This is particularly important in relation to applications received over the internet. Brokers should not act for customers who are unable or unwilling to produce sufficient proof of identity.

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