21st Century Conveyancing – A Lenders perception?
This whitepaper gave the results of a survey of 28 decision makers, which included directors, heads of department and compliance managers at some of the largest and most influential mortgage lenders in the UK.
Mortgage fraud is one of the most significant risks to a lender. The National Fraud Authority estimated the annual loss attributed to mortgage fraud at £1bn in its 2013 Annual Fraud Indicator report.
The purpose of the survey was to offer an understanding as to where these decision makers stand with regards to the management of risk within a property transaction. The survey allowed for questions to be posed giving an insight as to where the lending community position the role of conveyancing, and the conveyancer, in the prevention of mortgage fraud.
Where do the biggest risks originate from?
Frighteningly 37% of lenders surveyed thought that Solicitor Negligence was high on the list when it came to risk within a property transaction.
Despite considerable steps taken by both the CML and FSA to help reduce the risk of mortgage fraud, the Financial Times in 2013 reported that mortgage fraud is more rife than ever before. In fact, a report by Experian revealed that attempted fraud rose to 38 cases in every 10,000 application up from 35 per 10,000 in 2011.
What is the impact of these risks?
Is it therefore the belief that the tiny minority of negligent or criminal conveyancers are muddying the waters in the lenders eyes? What does this mean for the majority of hardworking and diligent conveyancers? 70% of Professional Indemnity Insurance claims against the legal profession relate to property transactions according to the world’s largest independent insurance brokers Lockton Companies. With all the omnipresent risks in conveyancing transactions, to learn of a statistic like this is a worry.
These are the figures that are frightening the lenders, who are taking steps to limit their own potential culpability and involvement; conveyancers are therefore best to take all steps possible to protect each and every transaction they carry out.
How can the profession manage the risks?
The report, through its survey and resulting figures, demonstrates how it is becoming more and more important for the profession to allow itself the ability to show to both the consumer and the industry that it is taking the threat seriously. It is important to note that 92% of the lenders surveyed felt that data sharing, transparency and controlled processes are major drivers in the implementation of reducing risk of fraud in property transactions.
Fraudsters are clever at duping the conveyancer or firm; the fraud will not always be apparent as the criminals will often use at least one professional within a transaction. Creating a paper trail of diligence and constant awareness of where the money is to be transferred is essential. As stated by the Law Society’s own guidance note on anti-mortgage fraud; “Courts will assume a high level of knowledge and education on your part. They will often be less willing to accept claims that you were unwittingly involved if you have not applied appropriate due diligence.”
A most recent example for conveyancers to ensure they maintain high standards in the prevention of fraud was the result of Santander UK v RA Legal Solicitors. RA Legal was found to have been negligent in unwittingly paying £150,000 of Santander’s money to a bogus law firm. Tracey Carr of Santander commented “The judgement will encourage the residential conveyancing sector to prevent as far as possible fraudulent activity from taking place.”
The criminals even go so far as to clone the website. A check of the Law Society’s Find A Solicitor page does not take this threat into account and so is no longer sufficient to use alone.
What role does technology have to play?
Interestingly the results of the survey also state that more than half of the lenders questioned believe that technology is improving the conveyancing process. They believed that it produced speedier transactions which therefore reduced the risk of fraud.
Tools to help counter this particular threat are available, amongst which is Lawyer Checker. This is a system which allows for up to ten identity and fraud checks on the firm that a conveyancer is dealing with. The unique database has been collated over a number of years and only continues to grow with use. Significantly it performs a check on the account number which the law firm has provided. The check is simple; if the account number shows numerous uses by conveyancers the returning result is ‘frequent’. Where an account is relatively new or it has a very small number of searches carried out against it the result is ‘infrequent’. An ‘unknown’ result is where the database shows no track record of use of this account by other conveyancers.
What are the lenders attitudes towards the methods in the marketplace which are available as resources in helping to reduce the risk of mortgage fraud? Is progress being made?
Of those surveyed 81% felt progress is being made in some form, however the majority answer was that conveyancers and firms are making slow steps forward. Heading in the right direction then, just do it quicker? Do lenders feel that the profession is reticent to demonstrate that it is willing to move with the times? It would be great to see the slow steps become big improvements in the lenders eyes.