Conveyancers could be liable for millions

Under recommended new reforms to the Land Registration Act 2002 (LRA 2002), conveyancers in England and Wales (and their Professional Indemnity insurers) who fail to take reasonable steps to confirm clients’ identities may be liable for millions of pounds to the HM Land Registry.

Since 2009, HM Land Registry has prevented 279 property fraud scams worth a total of £133m. 700 “bogus conveyancer scams” were detected in 2017.

The Law Commission, however, say that the LRA 2002 needs to be refreshed to adapt it to the modern world and make things as efficient as possible, so that it will “help prevent fraud and make conveyancing faster, easier and cheaper for everyone.”

The importance of land registration

In this country, land registration underpins conveyancing by providing one single, central source of information on the ownership of land. It guarantees that what the land register says about ownership is true.

It tells purchasers that the seller has the right to transfer ownership, and whether anyone else has an interest in the land, such as a right of way or a mortgage.

Entry on the register is enough to prove ownership – it is a guarantee of title backed up by a state indemnity if things go wrong.

25 million properties registered

85% of land in England and Wales is now registered with HM Land Registry, totalling 25 million titles. The remaining 15% will be registered when a property is sold or otherwise transferred.

The Government has set up a service where property owners can take steps to protect their property from being fraudulently sold or mortgaged.

If a title has been fraudulently transferred and recorded on a register by the Land Registry, victims are able to claim indemnity.

The Law Commission says the registry has paid almost £60m in indemnity payments over the past decade, due to fraud taking place on registered land.

Now, however, a ‘duty of care’ will be imposed by the Commission under the new reforms, to ensure that conveyancers make the necessary efforts to check a client’s identity.

Those conveyancers who fail to make the checks would then be charged by the registry.

The proposed amendments to the legislation to help tackle fraud include:

  • enabling HM Land Registry to set the reasonable steps that conveyancers must undertake to verify the identity of their clients, to help root out fraudsters;
  • imposing a duty of care on conveyancers with respect to identity checks, based on the directions issued by HM Land Registry;
  • if a conveyancer fails to meet his or her duty with respect to identity checks, ensuring that HM Land Registry has a right of recourse against the conveyancer to recover the amount HM Land Registry paid for the loss caused by the fraud.

Conveyancers who follow the required steps won’t be responsible if fraud still happens.

The Commission states: “Our reforms ensure that the financial consequences of fraud fall on the minority of conveyancers, who do not exercise appropriate due diligence. They will also encourage best practice in the profession, and, by providing a standard set of checks, give clarity and certainty to conveyancers about their obligations in respect of identity checks.”

The full report on recommended changes to the LRA 2002 can be found here.

Anti-money laundering rules already exist for both Licensed Conveyancers and Solicitors, respectively the joint Law Society and Land Registry guidance note on Property and Title Fraud issued 8 September 2017 and Anti-Money Laundering & Combating Terrorist Financing Guidance issued December 2017 by the Council of Licensed Conveyancers.

We welcome these suggestions because shockingly, many firms that we have spoken to openly admit that they do not routinely comply with them or follow up suspicions raised during the conveyancing process.

DUAL Asset can help

Despite strong counter-measures, well executed, professional fraud will not be eradicated, leaving consumers at risk of losing their savings and homes. When conveyancers decide not to follow existing guidance, the scope for things to go wrong for a client rockets.

Our latest policy, I.D. Fraud Insurance, insures the risk of loss caused by identity fraud, perpetrated by a seller or person pretending to the actual owner. For £30 (plus IPT), a property value of up to £500,000 is insured for as long as the consumer owns the property.

At DUAL, we understand that the role of a conveyancer is a complicated one and that is why we offer bespoke conveyancing insurance solutions under our DUAL Asset brand to protect clients and their most valuable investment.

To find out more, please use the contact details below:

+44 (0)207 337 6461
[email protected]