The financial collapse and fall in property prices unmasked the scale of mortgage fraud that been hiding in the shadows of rising property prices. Despite tighter lending practices however, mortgage fraud continues to grown in the UK.
In line with mortgage fraud itself, a raised awareness among lenders and authorities means that prosecutions are also on the increase.
Fraud - The lie must be operative and dishonest
Most mortgage fraud is prosecuted under the Fraud Act 2006, which replaced the Theft Act 1968 and Theft Act 1978. An important factor in any fraud prosecution is that for a lie to be fraudulent, it must be ‘operative’ as well as dishonest. This means for example that the mortgage fraud must have made a difference to a bank’s decision to lend or the amount lent. This is particularly significant for mortgage fraud given past lending practices in the property market and the complex evidential nature of these cases.
Failure by lenders to uncover a cash back scheme or other sales incentive, or a misrepresented valuation may arguably demonstrate a lack of due diligence. A relaxed approach to risk and lack of effort to check valuations may show that they were not as important to the bank’s lending decision as banks suggest. Bank recklessness can be a powerful strand in a defence case.
Authorities’ approach to mortgage fraud prosecutions
The focus by authorities on mortgage fraud and the approach taken by investigating authorities, prosecutors and the courts when trying significant cases is instructive for potential defendants.
In a recent example heard at Mold Crown Court, five defendants including a surveyor and a solicitor were found guilty of conspiracy to defraud after nearly five years of investigation. The protracted investigation uncovered nearly 50,000 pieces of evidence which showed that the defendants had inflated property and rental values and taken mortgages over fake properties. Given the amounts involved – around £20m of fraud through 189 mortgage applications—and the fact that the surveyor and solicitor were in a position of trust, they are expected to receive significant prison terms when sentenced later this year.
In R v Stevens and Others [1993] the defendants made 128 mortgage applications in relation to 90 properties over a period of eight years. During that period they had obtained £1.8m and tried to obtain an additional £2.5m resulting in a total estimated loss to lenders of approximately £250,000. Importantly, in assessing the appropriate sentence for the defendants, the court considered the difference between the amount of money provided by lenders in the circumstances and the amount they would have provided if the properties had been valued correctly. Furthermore, the court also considered whether the defendants had a genuine intention to repay the loans. Sentences ranged from 3 months to 6 years.
In addition to custodial sentences, the courts have applied confiscation orders to try and claw-back money obtained through mortgage fraud. In August 2012, two defendants, Saghir Afzal and Ian McGarry, previously found guilty of committing a £50m mortgage fraud, were ordered to pay £29,276,565 and £1,549,448 respectively, on top of jail sentences of 13 and 7 years received in 2011.
Specialist mortgage fraud solicitors
Potentially long and complex investigations, severe potential sentences and the difficulties caused by confiscation orders mean specialist legal advice should be sought as soon as mortgage fraud is alleged or investigated. Our specialist fraud solicitors have extensive experience in defending serious fraud cases; call us on 01616 966 229 today for more information or complete our online enquiry form and a member of the team will contact you.