Fraud: Fighting registration fraud together

Fraud: Fighting registration fraud together

The Land Registry’s Director of Legal Services, Alasdair Lewis, looks at the contribution the Land Registry is making to the fight against fraud.

For more news from the Land Registry please check out their latest Landnet bulletin.

Fraud is a challenge. It is a blight that affects all parts of today’s society and everyone in it. According to the 2011 National Fraud Authority Annual Fraud Indicator it costs the UK an estimated £38.4 billion each year.

Last October a collection of public and representative bodies, including the Land Registry, Solicitors Regulation Authority and the Council of Mortgage Lenders, joined together in publishing a strategic plan to fight fraud wherever it breaks out. The main theme identified was that to fight fraud, everyone needs to work together.

The need for everyone to play their part is just as relevant in the fight against registration fraud as in other contexts.

What is registration fraud?

In this article, the term registration fraud is used to refer to fraudulent acts that, if successful, will create an error in the register of title that we maintain.

Often, registration fraud involves some element of forgery and often some element of impersonation. Perhaps the most common example is where the fraudster impersonates the registered proprietor and induces the registration of a forged transfer or mortgage.

The definition does not include scams that use fraud to induce someone into making an otherwise legitimate transaction that is then registered. For example, it is not registration fraud where the fraudster misrepresents to a mortgage company the value of a property or the borrower’s financial circumstances because the resulting mortgages are valid unless or until they are overturned by the courts.

Some forms of mortgage fraud will also be registration fraud, such as where a forged mortgage or a forged discharge is registered.

Who are the victims?

Registration fraud can have a profound emotional and psychological effect on individuals who discover they have been targeted, or who believe their home might be at risk.

However, the register of title that we maintain is backed by a ‘state guarantee’ that entitles someone to an indemnity if they suffer loss from an error in the register, or when an error is corrected. This means that although registration fraud target innocent private individuals or companies, if the fraudulent transaction is registered their financial losses are likely to be repaid out of public funds.

How common is registration fraud?

Successful registration fraud is extremely rare. During the financial year 2011/12, we made 52 payments for registration fraud. This equates to 0.001 per cent of the number of substantive applications that we processed in the same year.

However, this statistic does not allow for complacency. The frequency of registration fraud has increased significantly over the last decade and with the average payout being approximately £150,000 fraud is a fundamental risk to our business.

For that reason registration fraud risk is treated accordingly; the risk, its impact and controls are assessed so as to determine what prevention measures should be implemented.

Why has registration fraud been increasing?

It is understandable, given the rise in instances of registration fraud in recent years, why some might lay the blame for that rise at the door of the changes in the conveyancing process, including land registration, over that same period.

Two features in particular have been singled out as the causes: the discontinuance of land and charge certificates as a means of demonstrating ownership and the ease with which information that we hold can be accessed.

However, the last decade has seen a huge increase in most forms of fraud — particularly those forms that involve identity theft. The increase seen in registration fraud follows this overall trend.

By the time land and charge certificates were discontinued, custody of paper land and charge certificates had probably ceased to be a reliable way of checking the identity of a property owner.

Instances of certificates being forged were being identified in the years before the register was ‘dematerialised’. Since then, evidence shows that the register has been targeted by organised criminal gangs: groups that can produce convincing forgeries of passports, despite their complex security measures. Forging a land or charge certificate therefore would be unlikely to present a challenge.

Much of registration fraud was carried out closer to home, often by one family member against another. In such cases the fraudsters often had access to the original certificates.

For these reasons, over-reliance on the production of a certificate as evidence of legitimacy would have made registration fraud easier rather than more difficult to perpetrate. The reality is that the move towards checking the identity of everyone involved in property transactions, rather than just those unable to produce a land or charge certificate, was inevitable.

It is more than 20 years since the register first became openly accessible. During this period (and partially as a result) the conveyancing world has been transformed.

Some suggest returning to private and restricted access to the records we hold. While it may be that to do so would make registration fraud more difficult, particularly for fraudsters with no connection to the targeted property, at what cost would this be achieved?

It is becoming more and more apparent that open access to public records and data can provide an important resource to help stimulate economic growth. Land Registry has an increasing part to play in this process. Reintroducing barriers to the property market by restricting access to information would be a disproportionate response to a problem that can be managed in different ways.

Of course not all the records we keep can be openly accessed. Some documents are kept secret, such as those provided specifically as evidence of identity.

So what are we doing to tackle registration fraud?

Over the last decade, the measures that we have put in place to counter registration fraud have developed in sophistication, keeping pace with the increased threat.

Our prime statutory duty is to maintain the integrity of the register, without unduly inhibiting the registration process for the vast majority of legitimate transactions. This includes identifying and preventing applications that would give effect to registration fraud.

However, the best way of tackling fraud is to prevent it as early as possible: dissuading potential fraudsters from attempting registration fraud, helping property owners and those considering acquiring an interest in property to protect themselves and generally developing systems that make fraud more difficult. So our counter-fraud strategy involves tackling the problem in all these ways.

We have a dedicated team that deals with the collection, assessment and dissemination of relevant fraud related information. The work carried out by this team involves close liaison with the Solicitors Regulation Authority and law enforcement agencies as well as other counter-fraud departments and organisations.

It is vital to keep up with fraudsters who will always be on the lookout for opportunities to exploit, so the team periodically reassesses risk, analyses instances of registration fraud to see if lessons can be learned and considers the potential for fraud offered by new major initiatives or policy changes.

The second article in this series includes discussion of the steps that property owners and their advisers can take to protect against registration fraud. Information and guidance is also available from our website, including Public Guide 17 — How to safeguard against property fraud.

Assessing and controlling the risk

To manage the risk of registration fraud properly, we have to assess the level of risk presented by each application processed and use a risk scoring system to help with this process. The following are examples of some of the more obvious risk factors that are taken into account.

– The type of application — registering a restriction usually carries less risk than registering a mortgage.

– The type of property and/or owner — empty properties or absent owners tend to be more vulnerable.

– Who is making the application — applications lodged by someone unknown may present more risk than those lodged by a trusted source.

– Specific information received — on occasion we may hold or have received information that may help us to identify a risky application.

Where applications are identified as less risky, it may be appropriate to dispense with procedures that are important in other cases where greater care is needed in order to weed out fraudulent applications.

For example, we generally require evidence of identity to be provided where a mortgage is to be registered, but not where the application is to register a restriction. Even with registration of a mortgage, we may not require identity evidence if the application is lodged by conveyancers who confirm that they are satisfied as to the identity of the parties involved.

We have introduced technology to improve the sophistication of our risk-scoring and to help members of staff identify cases that present a particular risk. However, all our caseworkers are trained to identify irregularities in the applications they process which may indicate a possible occurrence of registration fraud even where not otherwise identified by our procedures.

That tackling fraud is the responsibility of all caseworkers, rather than just members of a dedicated counter-fraud team, is an important part of our counter-fraud strategy.

If an application is identified as risky, caseworkers follow set procedures aiming to get a decision made as quickly as possible on whether more information is needed, notices need to be served or the application can proceed without further investigation.

Although where possible we publish guidance about our general requirements for processing applications, sometimes in appropriate cases additional requirements may be appropriate. This may inevitably cause some applications to be delayed while procedures are followed. For example, if a decision is made to serve a notice, we must allow sufficient time for a response and will need to evaluate the response (or lack of it). This can cause frustration to our customers, especially where the circumstances mean that full details about why the additional requirements apply are not provided.

Clearly a balance has to be struck. If too many legitimate transactions are delayed based on the identification of remote risk factors, customers will rightly feel that they are receiving a poor service. If too few fraudulent transactions are detected before registration, customers lose faith in the registration system. In having to address this sort of problem we are no different from many other businesses.

Are the counter-fraud efforts working?

It is difficult to measure the deterrent effect of our counter-fraud measures but they are undoubtedly having an impact. For example, when we first introduced a policy of requiring identity evidence where a private individual lodges an application personally, about a third of frauds were being lodged in this way. The change in our policy preceded a dramatic reduction in the numbers of this type of fraud.

While the best results are always those where our efforts manage to deter or prevent frauds completely, we are nonetheless proud that since September 2009 we have prevented actual frauds from being registered that have targeted properties with an estimated value of more than £50 million.

Our experience mirrors that reported by other sectors: fraud prevention must be a sustained effort by all stakeholders. Fraudsters are constantly evolving their practices to exploit perceived systemic weaknesses. To keep pace, it is necessary to react quickly and work collaboratively to ensure that instances of fraud are kept to a minimum.

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