How to prevent property fraud
Property fraud is a widespread problem made worse by easy electronic transactions without face-to-face verifications.
In this day and age, you can purchase a property without meeting your mortgage broker, surveyors, and conveyancing solicitors in person. With communication taking place over emails (mostly) and phone calls (occasionally), it is easy for fraudsters to infiltrate and impersonate as one of the parties involved.
Common types of property fraud, including rental fraud
Fraudsters pretend to be buyers
Fraudsters make an offer but withdraw before exchanging. They later use the information to forge documents and transfer the property to them.
Fraudsters pretend to be sellers
As information of homeowners is available on the Land Registry site, Fraudsters can impersonate as the property owner and dispose of the property quickly to cash buyers.
Fraudsters pretend to be lenders
Fraudsters forge documents to state that the property is discharged (a mortgage has been paid off).
Fraudsters pretend to be conveyancing solicitors
This is becoming so common that conveyancing solicitors are stepping up to warn buyers. The scam involves fraudsters hacking email accounts of conveyancing solicitors and asking you to transfer money to them, usually on a Friday afternoon when you don’t have time to verify.
Fraudsters using fake documents and proof of income to support their mortgage applications.
Scammers sell homes at inflated prices
This involves scammers selling house-and-land packages or holiday homes with an excellent expected rental return at inflated prices.
Fraudsters posing as rental agents
Fraudsters advertise a rental property and pressure interested parties to pay a holding deposit (money you pay to hold a property before an agreement is signed) immediately. They then disappear with the holding deposit.
How to prevent property fraud
If you are a buyer
- Ask plenty of questions to make sure that the seller is genuine, particularly if you are a cash buyer. You should also instruct your solicitors to check and verify the identity of the seller.
- Do not transfer any money to the conveyancing solicitors without first calling them to verify the instructions and bank details. Avoid rushing to complete on a Friday afternoon.
- Only talk to FCA-approve mortgage brokers and obtain loans from a reputable bank.
- Beware of ‘invitation-only’ property investment seminars where high rental return is offered.
- Beware of property that you only see on a website (like an auction property) but can’t visit in person.
- Examine the tenure of your new property, including the conditions under which the land or property is held or occupied.
- Beware of any urgent or demanding email and phone call
If you are a homeowner
- Visit the Land Registry site and sign up for Property Alert. This service will notify you when official searches and applications are received against your registered property. It will not, however, stop the activity as it is your responsibility to take action.
- Beware of buyers who make an excellent offer; they may withdraw just before completing.
- If you intend to rent out your property, use a reputable letting agent.
If you are a tenant
- Your holding deposit is not protected before you become a tenant, so only engage reputable letting agent.
- Once you become a tenant, make sure that your holding deposit and contractual deposit are with a government-backed tenancy deposit scheme. In England, they can be with Deposit Protection Service, MyDeposits, or Tenancy Deposit Scheme.
More about “home hijacking” scams
The scams are common during the property conveyancing process. The term conveyancing refers to the legal transfer of home ownership from the seller to the buyer. This multi-step process begins when the offer on the property is accepted and ends when the buyer receives the keys to the property.
Every property purchase must go through the conveyancing process, which involves:
- Sorting legal paperwork – The first step of the process involves a solicitor examining the draft contract and supporting documents, and raising enquiries with the seller’s solicitor. Both the seller and the buyer will need to complete various forms and inform their solicitors if they have any worries or questions. For the buyer, it is important to also examine the tenure of their new property, meaning the conditions under which the land or property is held or occupied.
- In-depth review of property – A vital part of the conveyancing process includes a series of legal searches to ensure that the buyer receives crucial information about all elements of the property. For instance, if the property is at risk of a flood or if there are plans to build a new highway close to the property.
- Conveyancing for the buyer’s mortgage – Any buyer that is purchasing a property will need to ensure that their mortgage is in place and that they have the financing required for the mortgage deposit. Their solicitor will need to review a copy of the mortgage offer and examine the conditions.
- Contracts are signed – Throughout the process, the solicitors of the seller and the buyer would have been in constant contact, and the buyer’s solicitor will confirm that everything is understood and satisfactory before the buyer signs the contract. Before signing the contract, the buyer’s solicitor will make sure that the buyer has made arrangements to transfer the deposit into their solicitor’s account so that it is cleared in time for the property to be exchanged.
- Contracts are exchanged – A date is agreed upon to exchange contracts. This normally involves the two solicitors reading out the contracts over the phone (this conversation is recorded) to ensure that the content of the contracts is the same, before the contracts are then sent out in the post. After the contracts have been exchanged, the buyer is legally obligated to buy the property on the specified date.
- Lodging before process completion – Towards the end of the process, the buyer’s solicitor has to lodge an interest in the property, so that the deeds to the property are frozen for 30 working days. This will allow the buyer to pay the seller and lodge an application to the Land Registry in order to put the deeds in their name. During this time, the seller will move out, the buyer will prepare to move in, and the seller’s solicitor will send a statement to the buyer with the final figure to pay. This amount has to be cleared into the solicitor’s bank account (of the buyer) at least one day before completion.
- Completion day – Normally, the completion of the conveyancing process is set around midday on the agreed date. However, it usually happens when there has been confirmation that the seller’s solicitor has received all of the money that is due. This is followed by the buyer collecting the keys from the estate agent they worked through.
“Home hijacking” scams take place when the buyer of the property is transferring the deposit to their solicitor. During this process, the fraudster will divert and steal the money, transferring it to various accounts, most commonly overseas. First-time buyers who are not accustomed to the conveyancing process or buyers who are not aware of such scams are often the main target.
Cybercriminals can effectively achieve this scam by hacking into emails between solicitors and property buyers. They will then seek out a victim, and remain low until just before completion when the payment for the property is required to complete the process. At this stage, they will send out a fake email, which appears authentic, explaining how the solicitor’s bank account details have changed. After the buyer has transferred the money into the fraudulent account, the criminal will swiftly empty and shut down the account before the buyer realises anything.
Romain Coleman, trusted landlord solicitors
If you intend to invest in a property and rent it out, check out the complete guide to becoming a commercial landlord in London first. This informative guide covers the costs and responsibilities you need to be aware of as landlord, as well as legal tips like terminating a commercial lease.
At Romain Coleman, we are solicitors for commercial landlords since 1964, assisting landlords with tenant disputes and other issues. Call us today on today on 0208 520 4555 or complete our Contact Form if you have a question pertaining to your commercial property.
This article was first written in 2016 and was updated on 05/02/2020.
If you found this interesting, you might also enjoy:
This post is not legal advice and should not replace professional advice tailored to your specific circumstances. It is intended to provide information of general interest about current legal issues.