Court, courtroom, law.
In this article, following the landmark judgement in Mishcon De Reya, Trevor Hallewell shares his thoughts on how the purchasers’ solicitors can minimise the risk of fraud.
Following on from the Mishcon case, I have been thinking about how purchasers’ solicitors can protect themselves against the fraudulent seller
(who may well have conned his own solicitors too).
I think that undertakings are useless, and passing the money to a third party managed account provider is also not going to shift the blame. The banks will have seen us coming on that one.
With acknowledgements and thanks to Bold Legal Group and their member Richard Carter of Martin Tolhurst, I offer the following thoughts
You must act to the standard of a competent conveyancer. This means reporting fully to your clients, carrying out searches/enquiries on all cases, pointing out risks where they exist, making sure sellers answer all enquiries fully, preparing/using up to date documents, and (in accordance with the Money Laundering Regulations 2007) checking fully any client ID. The possibility of FOG (fraudulently obtained but genuine) documentation is still a real one and we must spot and check things like odd dates of birth, dates of issue of driving licences and so on. Where a driving licence or passport has been issued recently exercise caution and if necessary ask for a client meeting or further forms of ID.
Be even more alert to potential fraud circumstances. You should be aware that some properties carry higher risks. The following list of higher risk factors is not an exhaustive list but you need greater vigilance where:
– a property is empty
– a property has no mortgage or restrictions registered
– a property is of reasonably high value
– there is urgency or impatience shown by the seller
– the replies from the seller seem to lack knowledge or understanding of the property
– the solicitors acting for the seller are from out of the area or who seems to lack conveyancing experience/knowledge.
Where any of these factors are present you must query with the seller’s solicitors if they have identified their client and whether they believe their client is the registered owner of the property.
Consider the factors highlighted in recent cases and practice notes. If you act for a seller on such a property check matters thoroughly and request a client meeting if necessary.
Do not send contracts on a sale or a purchase to any client where ID, Terms of Business and instruction forms have not been completed.
Occasionally where a client has not signed Terms of Business or ID produced is not compliant it may be that fee earners start work including searches or approving contracts on a purchase or issuing sale contracts. You should not be asking clients to sign any contract on a sale or a purchase where full compliance on ID, AML verification, signed Terms of Business and completed instruction forms have not been fully completed and returned.
Consider adding in a paragraph to your Terms of Business. This will seek to exclude liability to clients where there is an ID fraud and loss resulting from it, by any party represented by another solicitor. I would further suggest that specific attention is drawn to this clause in any covering letter.
Consider adding in a new paragraph about fraud in your contract report. Standard contract reports should contain a new paragraph warning clients about vendor fraud and bogus law firms, and whilst your firm has taken precautionary steps you are not in a position to guarantee title/registration. You should ask clients to highlight any concerns or factors of which they are aware. This may result in a few enquiries.
Do not give undertakings about your Client’s ID. After the Mishcon case, there will be firms who will overreact and request undertakings that you have identified your client and they are the registered owner. You cannot give this guarantee. You can say is that you have obtained suitable ID documents from the client you represent, you have verified that ID electronically with a suitable company and that you have no reason to believe your client is not the registered owner.
Review your file before making this statement and ensure it is accurate.
In addition to these steps, we need to find an adaptable insurance solution to offer to clients who wish to pay for the protection – does this not exist already in the Safe Buyer protocols and fraud prevention policies?
While the law is as it stands the buyer is in a difficult position, and we need to protect them and ourselves in the marketplace.