Both residential and commercial property transactions are potentially at high risk of fraud as well as anti-money laundering.
Back in 2024 the SRA included vendor fraud as an emerging risk within their AML Sectoral Risk Assessment after an increased number of law firms had unwittingly facilitated the same.
This is likely linked to the increased use of Artificial Intelligence and deepfake technology alongside the presentation of forged identity and other documents to solicitors and/or HM Land Registry (HMLR).
Unfortunately, fraudsters are constantly adapting their methodologies in order to avoid detection and maximise their chances of success.
This includes both exploiting new technologies such as artificial intelligence as well as returning to old tried and tested methods.
By employing a variety of methods to perpetrate fraud, criminals can stay one step ahead of legislation, regulation, law enforcement as well as victims.
Vendor fraud can have serious financial, legal and reputational consequences for both firms and clients alike.
Both buyers and sellers may face legal challenges if a transaction is later deemed fraudulent. Firms found to be facilitating vendor fraud may also face regulatory consequences, as was the case with South Wales firm Stephens Wilmot who received a fine of £19,383 for failing to verify its client’s identification documents and not acting upon the ‘Refer’ decision in an AML report in a case involving vendor fraud. In this matter, the firm remitted £110,910 to an unrelated third party.
Similarly, if a conveyancer has not properly discharged their due diligence obligations, HMLR has the right, under the Land Registry Act 2002, to:
- recover any money that it is obliged to pay out in compensation from them, or
- enforce any right of action arising from a fraudulent transaction against them
However, HMLR’s practice guide 39: rectification and indemnity states that, in relation to such transactions, they will not enforce these rights against any conveyancer who has properly complied with the digital identity standard.
What Is Vendor Fraud?
Vendor fraud typically occurs in property transactions where fraudsters impersonate the actual property owners without their knowledge or consent in order to sell the property and obtain the profits.
Vendor fraud may involve the marketing of a property for sale to a genuine buyer, or a sale to a complicit buyer working alongside the fraudulent vendor.
In both cases, the criminals may rely on genuine but stolen identity documents, manipulated documents or forged documents to support the transaction. Empty or tenanted property, particularly those that are not mortgaged, are considered to be at high risk of vendor fraud.
Tenanted Properties:
In the case of a tenanted property, a fraudulent tenant could seek to adopt the identity of the landlord and offer the property for sale. As these fraudsters will often be in actual occupation of the property, they may be able to provide convincing answers to the questions on the TA6 Property Information form, protocol forms and any other questionnaires that are needed for the sale of the property.
Empty Properties: In respect of an empty property, a fraudster could use the open Land Register to obtain the name of the registered owner and take on the identity of that owner. However, unlike fraudulent tenants, the fraudster trying to sell an empty property may lack the knowledge necessary to provide convincing answers to enquiries.
How Vendor Fraud Can Occur:
Well worth keeping your firm alert for these fraudulent strategies:
Impersonation of Sellers: Fraudsters may use stolen identities or forged documents to pose as the legitimate owners of a property. They can then list the property for sale without the real owner’s knowledge.
Use of Forget Documents: Criminals will often create fake title deeds or other legal documents linked to the conveyancing process to support their claims of ownership. Unfortunately, this can mislead conveyancers and buyers alike into believing the transaction is legitimate.
Vendor Collusion With Buyers: In some instances, they may be buyers who are complicit in the fraud which can make the situation more difficult to detect.
Law Firm Infiltration: Fraudsters may even infiltrate law firms either as employees or through other means to facilitate these fraudulent transactions. Whilst a robust Employee Screening Policy may not pick up first-time offenders, it can assist in your firm’s risk mitigation framework.
Who Are The Perpetrators?
Vendor fraud can be perpetrated by organised criminals (third-party fraud), but may also be carried out by family members, friends or associates of a victim (intra-family/associate fraud), or by others with access to a property, such as tenants in a rental property (opportunistic fraud).
What Type of Clients Are Most Vulnerable to Vendor Fraud?
Some clients will be at greater risk of property fraud than others. It is important that law firms consider any potential vulnerabilities or susceptibility to fraud when you are acting for a client.
Some personal factors that may place a client at increased risk are:
- age
- long-term absence (for example, if they are in a hospital or care home, or live abroad)
- having a condition that affects their capacity (for example, a mental health condition)
- having previously been a victim of identity fraud
Rental properties and properties where the resident has died are also more susceptible to fraud. It is important that law firm employees are trained to understand these increased risks.
What Are The Red Flags For Vendor Fraud?
- ID documents that do not seem authentic;
- a client being reluctant or unable to provide ID or appropriate due diligence information;
- clients with complex or unusual corporate structures;
- funds being routed through third parties with no obvious link to the transaction;
- pressures to sell a property quickly or without following proper processes;
- property marketed or sold well above or below the expected price;
- clients who are not resident at the address of the property in the transaction;
- clients who are only contactable by phone or email;
- situations where you do not have direct contact with one of the parties to the transaction;
- any other unusual or suspicious element to the proposed transaction;
Not all of these red flags necessarily mean that fraud is taking place and there may be plausible reasons for the same.
However, if multiple red flags are present this presents a much higher risk.
What Mitigation and Control Measures Should Your Firm Implement?
There are basic precautions law firms can take to reduce the risk of property fraud.
Assess The Risk of Fraud
Effective risk assessment is central to mitigating the risk of fraud. Risk should be considered both:
- strategically, as part of a practice-wide risk assessment, and;
- on a client and matter basis
Verify The Client’s Identity
Carrying out effective due diligence on your client is a critical part of mitigating the risk of fraud.
The SRA has reminded firms “If you only meet clients remotely, you should understand whether your electronic due diligence protects you against this, or to explore software solutions to assist in detecting deepfakes.”
While some clients and practitioners may have concerns about the security of EID&V, credible service providers that use modern technology and comply with accepted industry standards are likely to present a lower risk than other methods of confirming and verifying ID.
Paper-based systems may also be more susceptible to errors and may not be as thorough as electronic verification methods.
Similarly, HMLR practice guide 81 encourages the use of digital technology in identity verification. It sets out an enhanced level of identity checking and refers to requirements collectively called the HMLR digital identity standard, which relies on biometric and cryptographic features to confirm and verify a person’s identity in relation to a property transaction. This standard is not compulsory.
Biometric cryptography combines identifying individuals based on unique physical or behavioural traits with the securing of information. It creates a method of authentication that is hard to breach because it is deeply personal and is unique to each user.
Firms should also consider whether they have seen original ID documents or a properly certified copy. Where they have seen a certified copy, firms should consider whether this has been given by an appropriate person and ask themselves if they are satisfied that they have in fact certified the document themselves. Similarly, they should consider whether the person certifying the identity documents has confirmed that the document is authentic and is a true likeness of the holder (record keeping is key as outlined below). If the certifier was a Solicitor, law firms can contacting them directly through a reliable source, such as the Law Society’s Find a Solicitor online service.
Obtaining Reliable Evidence:
Where your client is the vendor, you must ensure that you can properly link them to the property in question. For example, you can confirm their presence at the property’s address from reliable sources, such as the electoral roll.
Exercise Caution When The Seller Does Not Reside At the Property
If the seller does not live at the address of the property being sold, you should regard the transaction as potentially higher risk and take additional steps to confirm that they are entitled to sell the property.
Appropriate documentary evidence might include:
- correspondence and invoices relating to the purchase and/or maintenance of the property
- an insurance policy for the property
- historic deeds
Exercising Caution Surrounding Dates
It is useful to compare the vendor’s details to the officially registered details on the proprietorship register. The date that a property was registered typically appears before the proprietor’s name in the register.
If the date of registration is inconsistent with the apparent age of the vendor, this may be an indicator of identity fraud. An example of this would be the vendor appearing to be a person in their twenties or thirties, but the proprietor having registered the property in 1980.
It is always important to sense check what the documents tell you against what you are being told, and what you observe personally.
Ongoing Monitoring Of The Transaction
You should continually monitor any property transaction to ensure that you identify any indicators of potential fraud. This includes changes to:
- the identity of the client (or their beneficial owner)
- the risk profile of the client or the transaction
- the client’s banking details (it is a CQS requirement that the vendor’s bank account must have been established for a minimum of 12 months)
Firms should also continually monitor the transaction for any unexpected changes or suspicious behaviours. One recorded scam is for a criminal to pose as a prospective buyer and withdraw from the sale after receiving the report. This enables them to then present themselves to another conveyancer as the seller, using information gleaned from the first, abortive transaction.
Record Keeping
It is important that you document and retain all records of the due diligence that you have carried out, including any review of the client and/or transaction, even if you are satisfied that the risk has not changed. You should also record any decisions that you make based on your due diligence as evidence of your compliance with the relevant standards and regulations.
Inform Your Clients of The HM Land Registry Property Alert Service
Firms should ensure that their file closure letters inform their clients who purchased a property that they can sign up for the property alert service which notifies the owner of any suspicious activity.
The Land Registry can also put a restriction on a title that would prevent anyone from registering a sale or mortgage on the property unless a conveyancer or solicitor certifies that the owner made the application. Agents can also help homeowners protect their properties by ensuring their contact details match with where they live, not the address of the empty or rented property.
It is particularly important to advise clients to update their registered address for service if they will be leaving their property vacant for a period or are otherwise likely to have difficulty monitoring post at the property. HMLR usually expects a response to any notice within 15 days. Therefore, it may be preferable for the contact address to be an email address, particularly when the client lives outside the UK.
Whilst law firms may consider registering your firm’s address as the service address for a property, you should ensure that you hold and maintain current contact details for your client so that you can contact them immediately on receipt of any significant documents or notification from HMLR.
Vendor Fraud in Summary from
In summary, vendor fraud in conveyancing is a serious issue that can lead to significant financial, legal and reputational repercussions. Awareness and proactive measures are essential for protection against fraudulent activities in property transactions. Employing a variety of methods to perpetrate fraud allows criminals to stay one step ahead of legislation, regulation, law enforcement and victims. Stop, look and listen.
As always, you can book onto any our Fraud Prevention Services:
Thanks for reading,
Eilish Cullen, Head of Partnerships at Teal Compliance.
