Property fraud cases triples
The number of new property auction houses has increased in the last ten years. As online letting agents have increased, so have property auction houses.
Property auctioneers are an excellent opportunity for cash buyers to pick up a bargain. Generally, you can pick up a property anything from 5 to 20% less the market value.
The lots offered at auction are wide-ranging from houses, flats, and investment properties, including commercial properties too.
Land and ground rents are frequent entries in auction houses which is ideal for investors and builders.
Most properties sold at auction are properties that have been repossessed or from probate or property traders.
Property auction legal pack, maybe the saving grace
The legal documents are ready for a potential buyer 14 days before the auction date. These documents are put together by the seller’s solicitors and are known as a legal pack.
The documents provided vary on the type of property, whether it is freehold, leasehold, vacant or let.
Buyers must be cautious and satisfy themselves with the seller’s documents.
The procedure when buying a property from an estate agent or privately is different procedure than the auction.
When buying a property, your solicitor would ordinarily raise all sorts of requisitions on the title before a solicitor would consider exchanging contracts.
Property auctions present a higher risk for fraud
The disadvantage, or may I say the risk of buying from an auction, is your solicitor will not be able to raise any requisition on the title.
Most sellers’ solicitors will not entertain any requisitions when their client sells a property in an auction.
It is vital to ensure the legal pack contains everything it should include. The key is to look to see what is missing and why?
For example, if you buy a tenanted property and the seller has failed to provide any documents regarding the tenancy save for stating it is let and what the rental income is.
If the property is tenanted with an “assured” tenancy as opposed to an “assured shorthold”, the property will generally be worth up to 30% less than the market value.
Any investment property sold in an auction should have as many documents regarding the lease or tenancy as possible.
In rare cases you might have a lot with a tenancy that commenced before the 28th of February 1997, and no further tenure was granted to the tenant.
Suppose such a scenario presented itself and a section 20 notice was missing from the legal pack. In that case, you could potentially lose money should your solicitor/licensed conveyancer fail to pick this up.
HM land registry introduced changes to its procedure which has helped reduce property fraud.
However, in the last 4 years alarming cases of property fraud where the sellers have specifically used property auction houses as the platform to commit fraud.
As stated above, the legal provided by the seller is what it is; you can choose to buy or walk away. Most solicitors would give a green light and advise their client that all is well and to bid on the day of the auction should they wish.
I have invested in property for 35 years and bought many properties from auction houses. I have been doing conveyancing for equally the same period.
Even with my experience, I could have been a victim of these frauds had it not been for some of these other victims coming to me for legal help.
I am dealing with a case where a property was sold through a property auction, and our member bought it. Paid a deposit of £60,000 being 10% of the total purchase price of £600,000.
The buyer, upon exchange (hammer going down) received the £60,000 soon after. The seller then sold the same property to someone else.
The property should not have been sold to someone else upon exchange, but it happened.
The seller then refused to refund our member the £60,000. The case two years on has not even reached the trial stage.
Another case we are dealing with is a property sold through auction. The seller did not own the property he sold; nevertheless, he pocketed close £800,000.
This case sadly involves a solicitor that is not squeaky clean. Again, this case is still alive and kicking in our courts.
It is frightening to think this is even possible, I have never heard of such cases before, but they seem to be on the increase recently.
As I have said, even I could have easily fallen victim to one of these scams.
Is it safe to buy from a property auction?
A direct answer is no. Mr Paula Higgins, CEO at Homeowners Alliance, when asked if they had noticed an increase in property fraud. He has reportedly said:
“Unfortunately, the value of successful frauds of property sales have more than tripled – from £7m in 2013 to £25m in 2017. Email and IT systems (especially those of conveyancers) are being attacked continuously. Scammers are becoming more sophisticated – fake emails can now be very hard to spot, and people may find themselves caught out, especially when under the stress of buying a home.”
To understand how these scams work (I intend to put these in print), we can make a simple checklist to reduce or eliminate the risk.
I will be publishing a free checklist that will be available so you can use this to identify potential high-risk lots.
Can homeowners be subject to property fraud?
Yes. The problem is serious enough for HM landlord registry to introduce further measures for existing property owners to enable them to take steps to protect their assets. All property owners should register with HM land registry following the information below.
HM land registry has made the following statement:
Property fraud can happen in many ways. For example, fraudsters may attempt to acquire ownership of a property by using forged documents or by impersonating the registered owner. The fraudsters may then raise money by mortgaging the property without the owner’s knowledge before disappearing without making repayments, leaving the owner to deal with the consequences.
Alasdair Lewis, Director of Legal Services, said:
“Following a successful trial of Property Alert, we hope that many homeowners will want to sign up for this new free service to help them protect what is probably their most valuable asset.”
According to the Land Registry, people can sign up and register up to three properties to be monitored. Email alerts will be sent when Land Registry receives an application to change the register as well as for official searches.
The property owner can then judge whether the activity is suspicious. For example, if a bank search has been conducted, but the property owner has not applied for a mortgage would be suspicious.
According to the Land Registry, people can sign up and register up to three properties to be monitored. Email alerts will be sent when Land Registry receives an application to change the register as well as for official searches.
The property owner can then judge whether the activity is suspicious. For example, if a bank search has been conducted, but the property owner has not applied for a mortgage would be suspicious.
Read our property auction guide (does not include fraud awareness)
Source: British Landlords Association
Author: Amanda Goldsmith
Date: 7th of July 2022
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