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Identity Fraud and Property Transactions: a 21st Century Nightmare

andrew-koffman

You buy (or think you buy) a vacant investment property. You complete the purchase and all goes smoothly until you get a visit from someone who says he is the owner and that he never sold you anything…

Cases of fraudsters impersonating property owners, to steal money from would-be purchasers, have become frequent in recent years and two claims by purchasers are heading for the Court of Appeal.

Property fraud generally has been on the rise and the amounts involved are invariably substantial. Common examples include diverting funds from property transactions by providing false bank details:-

  • The solicitor asks their vendor client for their bank details to remit sale proceeds but hackers intercept the email and reply, claiming to be the client and supplying their own bank details so the money goes to them instead.
  • Sometimes the hackers impersonate solicitors, usually to claim that the bank details previously supplied have changed, sending the buyer client an email which appears totally authentic but with details of their own bank account substituted.

I turn to the recent cases of vendor impersonation. The two recent cases going to the Court of Appeal and an earlier one which is not, all had similar facts – but different outcomes.

Typically, the properties in question are empty and mortgage free. Often, a speedy sale is also stipulated. These are the cases:-

1. Theft of £470,000 (Wimbledon)

The apparent owner “Mr Dawson” told his solicitors that he lived in Maidenhead. Land Registry documents showed Mr Dawson as living in Cambridge but the solicitors did not try and contact him there. The property documents referred to building works of which the client seemed ignorant. He withdrew from one sale when the buyer’s solicitors asked for evidence of where he worked. The claimant then made an offer to buy the property and the sale apparently completed.

The Land Registry contacted the real Mr Dawson in Cambridge and the fraud came to light. The claimant’s conveyancers had raised enquiries of the solicitors for “Mr Dawson” but not received satisfactory answers regarding the building works and the identity of “Mr Dawson”. However they went ahead with the transaction.

The claimant sued both law firms. His own conveyancers were held liable for negligence, breach of contract and breach of trust; and the fraudster’s solicitors were liable for breach of trust as trustees of the purchase money. Both firms were ordered to pay 50% of the loss.

2. Theft of £1.03 million (Hammersmith)

Again there was an imposter who passed himself off to his lawyers as the owner, “Mr Harper”. The purchaser, who thought he had purchased this property, started stripping out works which stopped when the real Mr Harper turned up.

The purchaser did not sue its own solicitors at the time although it may be doing so. It sued the imposter’s solicitors for breach of a duty of care to ascertain the true identity of their client (the judge decided no such duty was owed here) or for breach of trust. The judge decided that the solicitors would have fallen short of their obligations as trustees (though they were not negligent) but the completion was carried out on Law Society terms stating that the solicitors held the funds as agents and not trustees. There was also a claim for breach of warranty of authority (that they acted for the real Mr Harper) but this failed too. The purchaser also sued the estate agents for breach of warranty and/or negligence, but without success (they had been negligent but owed no duty of care).

Appeals are pending in this case and the next one:-

3.Theft of £1.1 million (Earl’s Court)

Again an imposter claimed to be the true owner, “Mr Haeems”, using an address in Catford. The fraud was uncovered by the Land Registry after “completion”. The purchaser sued its own solicitors and the imposter’s solicitors. Warning signs consisted of the apparent urgency, the empty property and that the Catford address did not match Mr Haeems’ registered address.

The claim against the imposter’s solicitors failed. As in case 2 they had not given a warranty that their client was genuine. A claim for breach of trust failed for the same reason as in case 2 (Hammersmith above). Finally a claim for breach of undertaking also failed.

However the purchaser’s claim against its own solicitors succeeded. They were found not to be negligent, yet they were held liable for breach of trust. The judge implied a term into the retainer that the solicitors would only release the purchase money on a genuine completion. The solicitors had indemnity insurance and the outcome was probably aimed at mitigating the disastrous consequences for the claimant.

The result was odd given that the imposter’s solicitors admitted failing to undertake reasonable identity checks on their client, whilst the purchaser’s solicitors were cleared of negligence.

Comment

The law is now somewhat tangled and hopefully the Court of Appeal will clarify it. The appeals will be heard together in February 2018.

So what can be done about identity fraud? Mostly it is down to being vigilant.

Warning signs may include a vacant property, no mortgage, a high price and apparent urgency. A combination of these factors should alert anyone involved in the transaction, particularly solicitors and estate agents. Their usual “know your client” checks may need to be augmented in cases that arouse any suspicion.

Purchasers’ solicitors are seeking more onerous undertakings and/or warranties from vendors’ solicitors.

Also banks need to remain vigilant in relation to the setting up of accounts.

Law firms have tightened their procedures regarding the notification of bank account details for themselves and their clients.

There is no “one size fits all” solution for identity frauds or fraud against property owners generally. Vigilance, and willingness to call into question anything unusual or suspicious, are crucial.

Please do not hesitate to contact Andrew Koffman on the details below, if there is anything arising from this article that you would like to discuss.

t: 0161 827 4604

e: andrew.koffman@bermans.co.uk

Purrunsing v A’Court & Co

P&P Property Limited v Owen White & Catlin LLP

Dreamvar (UK) Limited v Mishcon de Reya

(all High Court, 2016)

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