Opinion

Identity fraud in conveyancing

10th May 2019

Identity fraud in conveyancing

Conveyancing solicitors should adopt a watertight approach to identity verification in order to avoid liability claims involving identity theft during the sale of property.

A recent revision to The Law Society’s Code for Completion offers new voluntary guidance when completing residential and commercial property transactions.

Here, Commercial Property Associate Jen Hicks-Jones takes a look at what prompted the move, and what it means in practice.

What is The Law Society’s Code for Completion?

The Law Society’s Code for Completion (‘the Code’) provides procedural guidance for solicitors when completing residential and commercial property transactions by post.

The Code is already adopted in many conveyancing transactions, and the use of it is confirmed by a seller’s solicitor to a buyer’s solicitor shortly prior to completion. 

From 1 May 2019, the Code has new revisions that can be adopted voluntarily by solicitors as a result of the Dreamvar cases.  The significance in the update is the importance of verifying the identity of the seller(s) to avoid cases of identity fraud.

Dreamvar cases

Court of Appeal’s decision in P&P Property Ltd v Owen White & Caitlin LLP and another Dreamvar (UK) Ltd v Mishcon de Reya and another [2018] EWCA Civ 1082

On 15 May 2018, The Court of Appeal delivered a judgement on the Dreamvar cases - two cases with similar facts.

 

In both cases, fraudulent individuals posed as sellers of properties that they didn’t own. They instructed estate agents and genuine buyers were found. The genuine buyers and the fraudulent sellers instructed their own solicitors.

The sales went ahead. After completion, but before the sales had been registered at the Land Registry, the fraud was discovered.  The seller’s solicitors had not carried out all of the identity checks required.

As completion was not yet affected, the buyers were entitled to recover the purchase monies. However, the bogus sellers disappeared - along with the purchase monies.

How does this affect you as a seller or a buyer?

Your solicitor may ask for further identity verification documents to prove that you are who you say you are. This applies whether you are the buyer OR seller of a property.

If you are the buyer, the seller’s solicitors seeing the seller’s identity verification helps to ensure that the purchase monies you pay for the property do not fall into the hands of fraudulent sellers, leaving you out of pocket and without the property you intended to buy.

What does it matter for solicitors and clients?

The Code sets obligations on behalf of the solicitors for the buyer and the seller and is intended to give buyers greater protection from identity fraudsters.

In the Dreamvar cases the buyers brought a claim against the fraudulent sellers’ solicitors for breach of warranty of authority, breach of trust and breach of undertaking. The completion monies sent to the seller’s solicitors were on trust to be used for a genuine completion but were (unknowingly) used on a fraudulent transaction.

The buyers also brought a claim against their own solicitors for parting with the completion money at a non-genuine completion.

It is therefore important for solicitors to have a watertight approach in identity verification for property transactions to avoid liability claims. This is likely to lead to solicitors carrying out more detailed due diligence prior to accepting instructions from clients. 

  • Jen Hicks-Jones offers support to businesses, lenders and individuals, helping them to get the most out of commercial property. With a broad expertise across the commercial property spectrum, her experience includes: acquisitions and disposals, investment and development finance, commercial and residential development, acting for landlords and tenants, advising on property aspects of corporate transactions, and general estate management.

 

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