A property case has recently come before the High Court and it’s caused concern for solicitors and property buyers. It is a tale of fraud, missed opportunities and half a million pounds.
In this case, a fraudster held himself out as the owner of a property and he provided his solicitors with a forged passport in the owner’s name together with utility bills showing his name and address. All solicitors are under an obligation to check the identity of their customers and they did that; they couldn’t have been expected to spot the fake documents. However, they could have taken issue with the fact that the address given to them by the fraudster didn’t match the address for the owner of the property stated in the Land Registry records. They could also have sent a letter to the addresses stated in the Land Registry Records and if they would have done that they probably would have made contact with the true owner of the property. Unfortunately they didn’t do this and so they missed an opportunity to avoid a major fraud.
A buyer for the property was found and the fraudster pushed for a sale within a matter of days. As part of the conveyancing process, the buyer’s solicitors asked the seller to confirm the address of the hospital where he was said to have been working in Abu Dhabi. This should have come as news to the fraudster’s solicitors because they hadn’t been told that the seller was working and possibly living abroad. But this wasn’t followed up. Instead, the fraudster, perhaps sensing that the fraud would unravel, accused the buyer of delaying matters and he instructed his solicitors to pull out of the sale. Whilst the solicitors could have found this suspicious and then taken steps to investigate the true position, they didn’t and another opportunity was missed.
A new buyer was found and the conveyancing process was again followed. This time, the solicitors for the purchaser asked the seller’s solicitors if they had satisfied themselves of the identity of the seller. The response given was that they had met with their client, seen his passport, retained a copy of the photograph page together with utility bills showing his UK address “as notified to us”. At first glance this may seem to be a satisfactory answer to the question, but the Court found that those final 4 words made the answer ambiguous because they didn’t explain which address they were referring to. Unfortunately the purchaser’s solicitors didn’t press the point and ask which address that was, so they equally missed an opportunity to uncover the fraud.
The sale then completed and the purchaser handed over almost half a million pounds to the fraudster’s solicitors. They then transferred the money to the fraudster in Dubai and the paperwork was sent to the Land Registry to record the sale. At this point, the Land Registry wrote to the correspondence address given in the records and they made contact with the true owner of the property, so the fraud was discovered. This meant that an entirely innocent purchaser had lost almost half a million pounds to a fraudster and had no property to show for it.
Understandably, the purchaser turned their attention to their solicitors, but they also looked to the seller’s solicitors on the basis that they were the ones who handed over the money to the fraudster. The Court was therefore left to decide whether either or both solicitors were liable to the purchaser and, if so, in what shares.
The decision of the Court was that both sets of solicitors were equally liable and so had to reimburse the purchaser in equal shares. The purchaser’s solicitors were held liable because they failed to take proper steps to establish that the seller was entitled to sell and should have taken further steps to protect the interests of their clients. The seller’s solicitors were liable on a slightly different basis in that whilst they didn’t act for the purchaser, once the purchase monies were sent to them, they held those monies on behalf of the purchaser and were only entitled to release them where there was a valid sale of the property. Given that the fraudster was not entitled to sell the property, there could not have been a valid sale and so they shouldn’t have released the monies.
The innocent purchaser didn’t lose out, despite having been the victim of fraud. This is because solicitors are insured against such loss. But it must nevertheless have been a truly awful experience on the part of the purchaser who believed that they were buying a property only to discover that they had been defrauded and then had to face a legal battle against two firms of solicitors.
It must also have come as a shock to the true owner of the property that a fraudster had effectively stolen their identity and tried to sell their property. Indeed, landlords of rented properties are at increased risk of fraud because they don’t live at the property and any correspondence addressed to them and sent to the rented property may not be opened or find its way to the owner.
There is absolutely no suggestion that the fraudster’s solicitors knew their customer was a fraudster and so they were acting entirely innocently. But numerous opportunities were missed to detect the fraud. What this case tells us is that although there are rules and procedures in place which attempt to prevent fraud and although those rules generally work, with a determined and resourceful fraudster, occasionally problems will still occur. Importantly, solicitors are regulated and insured and when the worst does happen, there will often be recourse available to the innocent customer.
There is also a useful service operated by the Land Registry which could have assisted and which all property owners should consider using: the Land Registry Property Alert Service. It’s free and it involves registering an email address against a property so that if there are any official searches or applications made in respect of that property, an email alert is sent out. Here’s the link to the webpage: https://propertyalert.landregistry.gov.uk/ . I urge you to consider using it.
Conveyancers on both sides of a transaction are liable for the actions of a rogue seller who committed a £470,000 property fraud, the High Court has ruled.