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Law Society Mortgage Fraud Practice Note Update – a chance to reflect

28 August 2014

The Law Society has recently published its most recent update of the Mortgage Fraud Practice Note (the “Practice Note”) designed to assist solicitors in preventing their lender clients becoming victims of fraud. Whilst the amendments to the Practice note are limited to updating references to legislation and supporting agencies, it serves as a useful prompt for lenders and their lawyers to consider the processes which they have in place to protect from fraud particularly in more buoyant times.

Whilst the mortgage industry continues to bask in the improving economic conditions, lenders must ensure that processes are in place to protect themselves from the continuing threat of mortgage fraud. The Mortgage Market Review, whilst designed to protect borrowers from entering into unaffordable lending has as a by product served to enhance the self protection of mortgage providers by adding additional layers to the underwriting process. The increased scrutiny of a potential borrower’s financial position will certainly assist in identifying potential perpetrators of the most common type of fraud namely obtaining a higher than affordable mortgage.

Whilst borrower fraud as described above remains the most common form it is not the most costly. Lenders, together with the third parties they instruct, must be ever vigilant to the changing face of fraud. Whilst it is difficult to predict what the next fraud will come from the improving market conditions will almost certainly increase the attempts. Solicitors who act on behalf of lenders are privy to significant information during the conveyancing process and must be ever vigilant to the signs of mortgage fraud.

The updated Practice Note continues to serve as a framework to assist solicitors in identifying and reporting mortgage fraud. Where solicitors fail to adhere to this guidance and a lender suffers a loss as a result of fraud, redress may be available to them though a claim for professional negligence.

Occasionally, solicitors themselves become involved with the fraud and in those circumstances, a lender can seek to claim its entire loss and is not subject to issues of mitigation as is the case in negligence. In some circumstances, the actions of a solicitor or indeed other third parties such as surveyors, may be so reckless as to fall within the definition of fraud. This should be borne in mind when any recovery action in negligence is undertaken so as to maximise the recovery.

The Lender Services team have secured significant recoveries on behalf of lenders in claims arising out of fraud and negligence. If you have suffered a loss arising out of secured and unsecured lending, please contact us to assess whether a claim may lie against the solicitor who acted on your behalf.