Sally Says: Potential Property Hijack
Managing Director Sally Laker looks at a recent scenario that highlights the importance of communication and case checking in the property chain.
Just when you think you have seen most events linked to a sale and purchase transaction, you realise that there is always an interesting story that reminds you of the need to be vigilant. Recently a friend decided to downsize from their big family home to a newer property with no mortgage and to release some cash. The move took place but had turned out to be a nightmare for all. She assumed that this must happen all the time and was surprised that I had never come across it before.
In all there were seven people in the chain, only two with mortgages, and exchange was all set for a Thursday with completion on the following Monday. As soon as the removal vans were all loaded up everyone was waiting for the completion confirmation. They all received a phone call to say that one of the lenders had decided to carry out an ‘audit’ and therefore could not complete on that day, and they would be advised once they could confirm a completion date! So with a completely empty house, and everything in the removal van, they ended up having to pay an additional £1600 for storage as completion wasn’t until three days later. My thoughts were immediately that this must have been some sort of fraud or money laundering alert, right at the last minute. I decided to look into what kind of reasons might have triggered the lender to impose the action at such a late point in the process.
Whilst unusual there are a number of possible reasons for the lenders actions.
It was unlikely to be money laundering because this would generally be checked and picked up by lenders before completion. This is one of the key reasons that lenders will stick to a panel of solicitors that they have approved.
It is possible that when the lender system screened the transaction that the outgoing accounts details hit a trigger that stopped the transaction from going ahead. Again, although not impossible, this would be unusual as this would normally have been thoroughly checked before getting to this stage – especially with an approved solicitor. The fraud screening system may have picked up that the bank account and sort code was linked to a previous fraud, and maybe the lender did not work from a closed panel of solicitors.
Alternatively, it could be an example of a “property hijack” or false positive match. This means that the applicant appeared to be the same person screened at application stage but on closer inspection they were not.
Another possible scenario is that a new piece of intelligence was received and it matched a past case that then concerned the lender about the collateral they were lending on. It is possible that the lender received information and, given their experience from the sequence of events, they suspected the person selling the property was not the owner. That would make it likely that the solicitor would be involved too.
New build is another area that lenders are currently concerned about, mainly regarding assignable contracts, also called “contracts of novation”. This is where a developer is selling his property via a middle man who has offered to take on, for example, 20 units at a reduced price. The middle man buys them for, say, £380k each rather than the developers asking price of £500k. The middle man is confident that he can sell them speedily, which in turn, frees up cash for the developer. They make an agreement between themselves and the middle man sells them at £450k each. The middle man offers the buyer a £50k cashback off the £500k purchase price on completion. That enables the buyer to apply for a 90% LTV mortgage as the purchase price is £500k, and a credit (cashback) of £50k is passed directly back to the buyer once completed.
This should normally be picked up by the solicitor who will notify the lender, as there is no buyer deposit. If the lender finds out about this prior to the completion it would mean that they had lost transparency on the deal, and an alert would be placed on that developer and that broker.
It is impossible to say what the real reason was, and it seems that all the transactions went through, but it is useful to know what can be hidden behind a seemingly normal transaction. This example is a very good reminder of how important it is to know who we are dealing with, and to carry out thorough checks in all cases.
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