Ross Clark on the devious yet relatively simple means by which fraudsters can, figuratively speaking, make off with your real estate
ONE OF THE oft-quoted attractions of owning property in a time of economic turmoil is that you can touch it and feel it. Unlike shares in an insolvent company, it doesn’t simply vaporise. At worst you might lose some lead off the roof to some sure-footed thieves, but no fraudster ever disappeared off to the Caribbean with a four-bedroom detached house in a suitcase.
Well, not literally, perhaps. Yet property is increasingly being targeted by fraudsters. Property can be and is stolen, and wealthy investors who own multiple properties left empty for long periods of time are particularly at risk. Chris Coleman Smith, an auctioneer with the property company Savills, was recently called to value a house in Finchley which had been repossessed.
While he was undertaking a valuation a man came up from the street and started asking questions: where and when was it going to be auctioned? It transpired that he had been the rightful owner of the property but had spent some time out of the country. While he was away, criminals stole his identity and heavily mortgaged the property. They then disappeared with the cash which they had raised against it — hence the repossession proceedings.
He wasn’t the only victim. In 2007 the Land Registry was forced to make it harder for the public to download land registration documents when it became clear that criminals were using the facility in order to steal property or raise fraudulent mortgages against it. Since 2005 the Land Registry has had to pay out £12 million in compensation to property owners who had been defrauded in this way. In one case a gang made off with £1.3 million by stealing properties in the West Midlands.
The Land Registry insists that it is also combating fraud by asking for identity checks, but they didn’t seem to be much in evidence when, in early 2009, an undercover BBC reporter succeeded in persuading the Land Registry to change the correspondence address for an expensive London property to a mailbox in Liverpool. The Land Registry wrote to the London property confirming that the change would be made in 21 days’ time — a useless defence against fraud given that a great number of properties are empty for much longer periods than this.
It is astonishing that property fraud should be rising in a country which supposedly has one of the most sophisticated land registries in the world and at a time when electronic surveillance ought to make it easier to trace and capture fraudsters. Yet the criminals, it seems, are a long way ahead of our bureaucrats.
Until recently it was not easy to get hold of Land Registry documents. You had to visit an office and prove your identity. Now anyone, anywhere in the world can log on to the Land Registry website and download documents at £3 a time. Some of the documents even include signatures — allowing fraudsters to cut and paste them on to other documents.
IT DOESNT HELP, either, that mortgage lenders have become astonishingly dozy in recent years when it comes to valuing the properties against which they are lending. They used to insist on sending a valuer to visit a property against which they had been asked to extend a loan; the exercise enabled valuers to sniff out suspicious applications.
Nowadays, however, many lenders undertake desktop valuations, with reference to various electronic databases. However clever the databases, they haven’t stopped lenders hugely overvaluing property — and putting themselves at risk of fraud. Last month the Chelsea Building Society gingerly admitted that it had put aside £41 million to cover losses from mortgage fraud, mostly committed on flats in city centres.
What was happening was that a criminal gang would buy large numbers of new-build flats at a discount from the developer. The gang, aided by an over-optimistic valuation from a corrupt surveyor, would fool a mortgage lender into advancing loans equivalent to the full list price of the properties. They would then walk away with the difference — and the lender would be left to repossess a load of flats worth much less than the loans secured against them.
For years the property boom was driven by sales of posh new apartments in provincial city centres, which were supposedly changing the landscape of urban Britain. Property shows on television and newspaper property supplements marvelled at the prices being achieved and the profits being made, and thousands of amateur investors were sucked in. Yet it is gradually becoming clear that much of this ‘regeneration’ was an illusion based on widespread fraud.
Yes, you can touch and feel a new flat. But that is little consolation if you are the only genuine buyer in an apartment block, your ‘neighbours’ have all done a runner with the mortgage money and you are surrounded by repossessed properties being auctioned off for a fraction of the price you paid.
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