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Mortgage fraud– a Guide for Professional Advisors

Mortgage fraud in the age of information technology – a Guide for Professional Advisors

Advances in information systems and technology have paved the way for businesses worldwide to streamline their information storage and sharing capabilities. Productivity has increased as a result and business processes are more timely and economical than ever.

The transition from paper to cloud has created a new arena for fraudsters to orchestrate even more sophisticated fraud tactics and mortgages are no exception. Key stakeholders including legal practitioners, conveyancers, mortgagees, mortgagors, valuers and brokers need to ensure that they remain alive to both the old and the new fraud tricks.

This article discusses current fraud tactics within the realm of the mortgage industry and provides useful risk management practices stakeholders can adopt in order to minimise their exposure to fraud.

Why are they doing it?

Some of the reasons mortgage fraud is on the rise include:

  1. They can – While technology has plenty of scope to improve efficiencies, it also aids fraudsters to perpetrate their scams quicker and easier, from basically anywhere in the world with an extra level of anonymity.
  2. They can’t afford it – You don’t have to look past Sydney and Melbourne to see that the housing market is priced beyond the limit of many income earners’ financial capacity. With house price increases set to continue exceeding salary increases, people hold genuine concerns that if they don’t enter the property market now, they never will.
  3. It’s worth it – The perception that penalties for white collar crime are lenient and seemingly “worth the risk”. In July 2015 a Sydney mortgage broker was sentenced to just 350 hours of community service on 3 charges of making false statements, making false documents and using false documents to secure home loans totalling approximately $7 million1.

How are they doing it?

Fraudsters are not only cunning but also incredibly sophisticated and technically savvy. In order to perpetrate their scams, fraudsters routinely:

  1. Create a false online presence – going so far as to create fake websites, emails, telephone and mobile details and social media accounts;
  2. Create fake identities – often targeting family members, people that are overseas, the elderly, the vulnerable and even doppelgangers;
  3. Doctor false documents including bank statements, tax returns, utility bills, contracts, certificates of title, passports, licences and bank cheques. Only last month a NSW man allegedly swindled $460,000 from a bank using two bogus pay slips2;
  4. Doctor false application forms – overstating their income and assets and understating their expenditure and liabilities, proving false employment particulars and falsely alleging that they have genuine savings;
  5. Obtain assistance from key stakeholders – including valuers, brokers, legal practitioners and conveyancers.

How can you protect yourself?

The key is to create a climate and culture within your working environment that places a premium on systems and procedures with an emphasis on quality control and due diligence.

  1. Always err on the side of caution;
  2. Perform your own independent credit and title checks. Ask an uninvolved colleague to review the file;
  3. Be alive to false pressure and urgency tactics. Unmask the reason for the urgency and then carry out due diligence on the reason provided. Unless a Notice to Complete has issued, it is unlikely that a super-urgent settlement is genuinely required.
  4. Never take applications on their face value. Pick up the phone and carry out proper due diligence including independent verification of contact; employment and security details;
  5. Obtain proper identification from all parties including the mortgagors, borrowers and guarantors. We recommend adopting the policy set out in the NSW Land Titles Office, Land & Property Information Circular which was released on 9 November 2015.
  6. Perform due diligence as close to settlement as possible;
  7. Insist on receiving original copies of security documentation or, at the very least, an undertaking from a solicitor that they hold the original documents and will courier or express post the originals as close as possible to settlement;
  8. Invest in sound software, systems and procedures and staff training;
  9. Never hesitate to ask the other party to confirm something in writing; and
  10. Last but not least, obtain appropriate professional indemnity insurance and have a sensible asset protection strategy in place.

Contact our Mortgage Team to learn more about preparing and processing Mortgage documentation and our Mortgage Recovery services.

 

1. http://www.theadviser.com.au/breaking-news/32563-sydney-broker-sentenced-for-7m-mortgage-fraud
2. https://au.news.yahoo.com/nsw/a/29915739/nsw-man-charged-with-mortgage-fraud/