The latest statistics from Cifas revealed that mortgage fraud is up 5%, but what exactly is it and what can lenders, solicitors and other professionals involved in the property market do to prevent it? Here, Martin Cheek, managing director at anti-money laundering experts SmartSearch, offers his five top tips to avoid being a victim of property fraud.
What is mortgage fraud?
Mortgage fraud is where false representations – either explicitly or implicitly – are made in order to defraud through the mortgage process. Any money made through this process will then be ‘proceeds of crime’ and anyone who then acquires, uses, has possession of or transfers this money is then at risk of committing a money laundering offence.
How do people commit mortgage fraud?
There are a number of reasons why individuals commit mortgage fraud but it will generally be to either obtain a larger mortgage than they are entitled to by providing misleading or false information. This information will generally be about their identity, income or other funds and their sources, their employment and debt. It may also be to do with the value of the property and the details about what has and will be paid in relation to the purchase of the property. Often, fraudsters will attempt to include professionals in the fraud, for example solicitors and brokers.
There is also the issue of large-scale mortgage fraud, generally involving several properties rather than just one, making the buy-to-let market particularly vulnerable. Money launderers target buy-to-let via a mortgage as a way of cleaning dirty cash through rent, or by taking out numerous mortgages on the same property and using them to inflate the value and in effect sell it back to themselves. They may also use a complicated corporate structure to buy the properties in order to hide the ultimate business owner.
So, what should you do to prevent it?
Fraudsters are always going to attempt to commit mortgage fraud – that you cannot stop – but what you can do is protect your firm from becoming a victim. Here are my five top tips on how to prevent mortgage fraud.
Identify and verify the client
Before working with anyone, you must verify the identity of your client, any businesses they own/work through and, where relevant, any beneficial owners. This means checking that they are who they say they are and the identification documents they produce corresponded with the information they have produced in order to obtain the mortgage.
Do your enhanced due diligence
The next part of your identification and verification process should be to perform sanction, PEP (Politically Exposed Person), SIP (Special Interest Person ), RCA (Relatives and Close Associates) and adverse media screening, and then perform enhanced due diligence if there are any matches, ensuring you are able to tell if these are true matches or false positives.
Conduct anti-fraud checks
While initial checks on the client will tell you who they are and verify their identity and enhanced due diligence will tell you whether or not they have sanctions, or are a PEP, you will also need to make sure you have comprehensive anti-fraud processes in place. For example, checking bank cards, mobile phone accounts, IP and devices and checking them against global fraud data lists to check for any previous fraudulent activities and against the register of deaths to ensure they have not stolen a deceased person’s identity.
Put in place regular checks and continuous monitoring
To protect your business from mortgage fraud, you will not only need to identify, verify and complete enhanced due diligence and fraud checks on your client, but you will also need to continually monitor them and do regular checks to ensure that their status has not changed. You will also need to keep records of the initial checks and all subsequent checks and due diligence for auditing purposes to prove to regulators that your processes are fit for purpose.
The easiest way to complete 1-5 and ensure that all your anti-money laundering and anti-fraud procedures are fit for purpose is to ditch manual checks and processes and switch to an electronic AML platform. All mortgage fraud has been perpetrated on the back of forged documents, but there has never been a fraudulent case linked to electronic verification, plus, the fifth money laundering directive (which comes into force in January) stipulates that electronic checks should be used wherever possible.