This area of law can affect both property investors and professionals such as surveyors, mortgage brokers, financial advisors, accountants and solicitors being targeted in criminal proceedings.
Early advice is essential in helping to lessen the stress and save your reputation.
Mortgage fraud is a generic term for the offences which involve deceiving a lender about an aspect of a secured property loan in order to obtain that loan. It also covers involvement in the transfer of that money by any professionals or other individuals where they are aware of the deception. Mortgage fraud offence tend now to be charged under the Fraud Act 2006, or if the allegations predate 15th January 2007, under various offences of the Theft Act, and under common law fraud provisions. Offences of this sort can be committed in a variety of ways:
Mortgage fraud by exaggeration or false information
Generally, there are two broad categories of mortgage fraud. The first involves deceiving the lender about one or more of the aspects of the loan such as
• Employment status and history
• The income of the borrower
• Debts or other liabilities of the borrower
• The value of the property
• The identity and source of other funding for the deposit etc
• Misrepresentation as to the purpose for which the loan has been obtained eg is the mortgage intended for personal residential use or as an investment
• Any other payments which will be involved (for example incentives outside the scope of the mortgage and deposit)
The Second Category – Completely Fictitious Deals
1. The Identity of the borrower
2. The proceeds of a loan (often for a remortgage) are provided to someone who does not have an interest in the property concerned, or does not he or she exist.
3. Fictitious sales of property take place to raise finance for a non-existent buyer, who is connected to or who is the ‘seller’, often many times at increasing loan values, the profit being the product of the fraud.
The Transfer of Money.
In addition to Fraud Act charges which might arise the transference of money pursuant to a dishonest misstatement, may also give rise to money laundering offences. A lawyer or other professional involved in this part of the transaction may be prosecuted for money laundering offences under the Proceeds of Crime Act 2002.
The second category above often relates to large scale so-called ‘mortgage fraud rings’. Prosecutions involving this type of case usually result in several different defendants being charged as part of a conspiracy, which means being part of a plan with other people to commit an offence or offences.
Individuals accused of a single domestic mortgage fraud
At the less serious end of the spectrum of mortgage fraud cases is an allegation that someone has made a single fraudulent statement (for example regarding income) in order to obtain a single residential mortgage. This is the type of offence that will often not result in charge if it is discovered and may not result in a prison sentence should it proceed to court. A lender’s motivation to proceed will often depend on whether the deceit has resulted in an inability to pay and a repossession of the property.
Mortgage Fraud Conspiracy – Large Scale Frauds
Conspiracies to defraud are cases in which several parties are charged with being involved in, and having knowledge of, the same plan to defraud. Often it is not just borrowers and their associates who are charged, but also any professionals who have assisted in the transaction such as surveyors or lawyers. Bank employees or brokers may also be charged if the investigators believe this is justified. Where conspiracy is charged, it is often as the result of a large scale investigation concerning several properties. Usually a lender’s in-house investigation department will have done much of the pre-charge preparation and will be in communication with the police throughout the preparation of the prosecution case. Where a property portfolio has been repossessed and a bank has been left out of pocket, perhaps by millions, serious bank and government investment will be put behind the prosecution. These cases often involve multiple property purchases, resale and/or remortgages.
They often result in the strictest sentences. There is a perception, justified or not, that at the extreme end this type of transaction can be linked to illegal drug distribution businesses, other organised crime, or even terrorism. This perception is perhaps another reason that there is such a high level motivation to prosecute mortgage fraud effectively.
what we can do
We can point out the legitimacy of the client’s business interests on the whole to proactively portray an accurate picture of someone who is far away for these negative stereotypes.
Professionals (including solicitors) accused in Mortgage Fraud Cases
While the legal mental blameworthiness required to be proved remains the same for a professional person suspected of involvement in a mortgage fraud, the acumen and experience of that professional person will often be deployed against him by the prosecution. It will be argued that because of that experience and acumen s/he must have known or ought to have known that the application or transaction was fraudulent. The real situation can be that such propositions are often far from the reality of the lives of busy, under-resourced professionals. That said, dishonesty may be established in many different ways, and a prosecution will rely on a number of factors to prove its case.
Solicitors and other professionals are in fact specifically on notice from their governing body (In the case of solicitors from The Solicitors Regulation Authority) in respect of certain triggers which should make them aware that a transaction may be bogus, or contain a dishonest element. In addition, POCA 2002 imposes a duty on professionals to report suspicious financial transactions to the authorities) such trigger circumstances include:
• Multiple recent remortgages or sales on a property
• A large unexplained increase in the purchase price from the price the property was bought for
• A payment of the deposit direct to the seller
• A deposit not paid by the purchaser but by a third party
• Any other circumstances which render the status of the buyer suspect
• Monies left over from sale proceeds (or the sale proceeds themselves) to be paid to a third party and not the seller
In a mortgage fraud case, having an understanding of the nature of mortgage fraud is essential. These are not normal cases. Key to understanding them is the nature of the complainant (usually the borrower) and their loss.
It is also important to have a degree of industry awareness relating to property. We have experienced individuals who have been in the property environment for over the last 15 years.
However, the fundamentals of case preparation in complex criminal work remain the same. Getting on top of the detail of the case early is paramount. There are often large volumes of papers in mortgage fraud cases, and anything significantly improving or detracting from the case of the client.
Those accused often have no experience of the criminal justice system, and have usually never been convicted of a criminal offence. In these circumstances, the, threat of custody, proceeds of crime proceedings are compounded by the potential loss of a client’s good character as a result of criminal conviction.
It is particularly important to note that in the preparation of cases of clients with no previous convictions, the thing that a client perhaps most fears losing, their reputation, is precisely the thing that we use to help fight the case. We will obtain Character witnesses and statements will be taken before they attend court to take the stand. Evidence will be gathered of all of the client’s respectability, both personal and professional. Where a client has earned respect over years of recognised contribution in their business or personal life, that must be presented to the court.
Why us a Solicitor not an Accountant?
Perhaps the most important decision that must be made in a mortgage fraud defence case concerns the choice of criminal lawyer, both solicitor and barrister. The temptation can be to take advice from another professional such as an accountant as to whom a good lawyer might be, without doing any independent research for oneself. Often the accountant may refer the client to a solicitors’ firm with which he has an informal referral arrangement, who may not even be a specialist in criminal law, but a civil law practice with some criminal capabilities. Our advice is to find an appropriate criminal specialist. It is important to ask questions about the lawyer in question’s experience of similar cases, about the team who will be working on the case, and the preferred choice of barrister.
Fraud is a difficult area because it is criminal law, but also financial. The barrister has to have the intellect and financial experience to handle fraud offences, but in mortgage fraud cases, like in all criminal cases, a barrister must be creative and aggressive where required. Good criminal defence is not just about understanding and processing financial documents.