Lenders and valuers who have been caught out by a loan that has gone bad will be interested in the decision in Platform Funding Ltd v Anderson & Associates Ltd [2012] EWHC 1853 (QB). It provides useful guidance on the courts’ approach to negligence claims against valuers where third parties have engaged in fraud.
This case arose as a result of the dishonest marketing of a flat in a newly built development in 2006, at a time when the market was still relatively buoyant. The fraudster agreed to buy – but did not complete the purchase of – a number of flats in the development and then sought to sell them on at a profit. He made use of the developer’s sales staff in order to create the impression that the developer was marketing the flats and cleverly concealed the cash contribution, which he offered to prospective buyers, in order to inflate the final sale price.
The fraudster introduced the buyer to a sub-prime lender. The release of the mortgage advance and the fraudster’s own cash contribution relieved the buyer of the need to fund any part of purchase price. When the buyer was ready to complete, the fraudster used the money released by the buyer’s solicitors to enter into a lease with the developer. The lease was then assigned to the buyer and the fraudster pocketed the difference between the price paid and received. In due course, the buyer defaulted on the loan and the fraudster fled the country – with the profits from a string of similar transactions – leaving the buyer’s valuer and conveyancer to face the music.
The judge agreed that the valuer had failed to exercise reasonable care and skill. The valuer had failed to consider whether the purchase price had been inflated by incentives. He did not seek out any new build comparables in adjacent blocks, or comparables from the second hand market from either estate agents or the internet, and did not make any other enquiries about sales in developments in the locality.
However, on the facts of this particular case, none of these actions would have turned up evidence suggesting that there was anything untoward. Consequently, the judge did not believe that the valuer would have amended his valuation, were he to have made such enquiries.
The lender’s loss was caused by the fraudster’s dishonesty. The apparent involvement of the developer in the marketing had not helped and the buyer’s solicitor had made matters worse. He failed to advise the lender that the sale was a back-to back transaction, omitted to mention the seller’s cash contribution to the purchase price, and had parted with the mortgage advance before the lease was granted in breach of his mortgage instructions.
The judge commented on the near-impossible task faced by valuers trying to obtain details of incentives offered to buyers. It was small wonder that the Council of Mortgage Lenders had introduced a rule in September 2008 requiring developers to complete a “Disclosure of Incentives Form” providing details of all discounts and incentives offered to buyers.
Allyson Colby, property law consultant
