Why checks must be made to deter the bogus legal firms
I am in the process of buying a property and the firm of solicitors dealing with my transaction are a medium-sized, long-established firm I have used a number of times previously. I have a history with this firm both in relation to my personal and business legal requirements.
I am purchasing a flat in a suburb of London to add to my property portfolio. The seller of this flat has appointed a newly- established firm of solicitors with only one partner.
On behalf of both myself and my mortgage advisor, my conveyancer has said that he must “check out” this firm. This will be at an, albeit relatively minor, additional charge.
Is it not the case that firms of solicitors are regulated and, if so, why is it necessary for such checks to be made and I should have to pay for them?
Solicitor firms are regulated with the Solicitors Regulation Authority.
However, property fraudsters are clever and devious and cases of fraud have substantially increased over recent years in a number of areas, so it pays to be proceed with caution.
More recently there have been a number of cases whereby bogus/ fake firms have been set up to deal with property sales and received money from genuine and innocent firms acting for their buying clients. Following completion, these fake firms have literally disappeared, pocketing the sale proceeds leaving both buyer and lender with a substantial problems and financial loss.
One such case involved a large high street firm whose identity had been used to set up a non- existent branch office to facilitate this fraudulent procedure.
There is a duty on all solicitors to act diligently. In property transactions, conveyancers are required to carry out a number of checks both in respect of their client identity but also, more recently, in respect of their opponent firm.
Search providers have now developed a check process whereby the opponent firm can be vetted via a series of checks involving the Land Registry and the bank details given by the opponent firm into which the sale proceeds are to be paid on completion.
Ordinarily, most conveyancers with some experience will recognise the opponent firm and be able to ascertain their validity. However, if there is any doubt, the duty to carry out the checks lies firmly with the buyer’s conveyancer. In the absence of such checks, if an issue arises, the buyer’s firm will be liable.
A recent case involving Nationwide Building Society featured a transaction whereby checks had been made and both the lender and the Serious Organised Crime Agency sanctioned the transaction to proceed and yet the fraud occurred. This is very concerning for us as conveyancers. Your conveyancer is correct to advise you to check out the firm. Such checks verify the number of transactions via Land Registry made by them. If there is no history or only a few recent transactions, the suspicion is affirmed.
Title insurers have also introduced a product known as the Secure Conveyancing Insurance Policy (SCIP). This policy is designed to cover homebuyers and lenders against financial losses as a result of property fraud.
This policy provides comfort against these unforeseen risks which will only surface after the completion has been achieved and thus the fraudulent act has succeeded.
Land Registry has increased its fraud protection measures since 2006, when the Land Register became a public document.
Land Registry has also introduced a fraud hotline to provide advice to homeowners who fear a fraudulent sale or mortgage transaction. Fraudsters are holding themselves out as solicitors and a few are getting away with it.
John Robson is Conveyancing Manager at Ford & Warren Solicitors, Leeds.