When in doubt, check it out

James Davies and Michael Whitaker answer questions on property fraud and how to avoid falling victim. Question Earlier this year, I bought a garage near to my home to house my classic car. A local estate agent made the introduction. They told me that the owner was looking for a quick sale because he needed to move abroad for work. I viewed the garage, which was empty, and agreed to buy it. The estate agent informed me that the seller wished to complete within two working days. I instructed solicitors to complete the purchase within the required timeframe. When I had paid the money, it emerged that the person selling the garage did not own it. He has since disappeared. How can I claim my money back? Answer There have been numerous reports recently on the increase in “property hijacking”, where fraudsters pose as legitimate owners of a property and “sell” it without the real owner’s knowledge. Unfortunately, you appear to have fallen victim to this type of fraud. However, in light of recent case law, you may be able to make a claim for the purchase monies from the solicitors’ firm that you instructed to complete the purchase for you. ■ In Dreamvar (UK) Ltd v Mishcon De Reya [2016] EWHC 3316 (Ch), the High Court considered a case where a fraudster posed as the registered proprietor of a valuable, unencumbered, freehold property in London. In exchange for the purchase price of £1.1m, the fraudster gave the purchaser a forged transfer document. The fraudster disappeared with the purchase money. Once the fraud was discovered, the purchaser sued its firm of solicitors and the solicitors who acted for the fraudster, in an attempt to recover the loss that it suffered. The court found the purchaser’s solicitors liable for a breach of trust and ordered them to compensate the purchaser by making a payment equivalent to the purchase price. In reaching that conclusion, the court accepted that the purchaser’s solicitors had acted honestly and innocently. However, when the purchaser paid the purchase money to its solicitors, its solicitors held those funds on trust for the purchaser. The purchaser’s solicitors were only authorised to release those funds on a genuine completion of a genuine purchase. Accordingly, in paying them away to the fraudster’s solicitors in circumstances where there was not, nor could there be, any genuine completion of the contract of sale, the purchaser’s solicitors committed a breach of trust. On the facts of that case, the court found that the fraudster’s solicitors were not liable to the purchaser, even though it was accepted by the fraudster’s solicitors that they had not undertaken such identity checks on its client as could be expected from a competent solicitor. Therefore, on the basis of Dreamvar, it is likely that you can insist on your solicitors compensating you by paying you a sum equivalent to the purchase price. Claims against the seller’s solicitors or the estate agents (assuming that they were not complicit in the fraud) are less likely to succeed. However, in order to determine the prospects of success in such claims, it will be necessary to carefully examine the details of your case. Question I am a property developer, who is constantly on the lookout for development opportunities. I understand that, in recent years, there has been an upturn in fraudsters seeking to sell properties that they don’t own. How can I recognise such a fraud and how can I best protect myself against it? Answer Fraudsters use a variety of different techniques to mask their crimes, which can make it difficult to detect the fraud before it is too late. However, there are a number of warning signs that may indicate a higher risk of fraud and a number of steps that you and the solicitors you instruct can take to protect yourselves. ■ Properties with certain characteristics may be more likely to be targeted by fraudsters. Unoccupied properties, tenanted properties, properties undergoing redevelopment or properties with owners living abroad may be more vulnerable to fraud as the legal owner may not be present. This means a fraudster can often sell the property without the true owner even realising. Registered owners who are elderly and in hospital or living in a care home may be particularly at risk of having their identities used fraudulently. This is because many such individuals will own properties that are unencumbered by any legal charge. Often, a fraudster will insist on the transaction taking place within a short space of time, putting pressure on the buyer to complete quickly and so allowing little opportunity for the scam to be detected before the purchase moneys are paid over. Various explanations may be advanced to explain the urgency. In Dreamvar, the urgency was explained by divorce proceedings. There are other factors that should set alarm bells ringing and encourage further investigation. These include where the purported registered proprietor instructs solicitors based a long distance from the property, if they do not attend at the offices of their instructed solicitors to sign documents, or if they are unable to provide their solicitors with instructions regarding routine enquiries about the property. If any of the above factors (or a combination of them) are present and lead to a suspicion that the transaction may not be bona fide, your solicitors should make further enquiries into the identity of the seller. The Law Society publishes a practice note on property and registration fraud (available here), which provides further detail on how to recognise a fraud and what steps can be taken to lessen the risk of falling victim to one. In addition, the Land Registry has a counter-fraud unit which works closely with the police and other agencies to reduce the risk of fraud. James Davies is a barrister at Enterprise Chambers and Michael Whitaker is an associate in the property litigation team at Charles Russell Speechlys LLP