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Fraudulent House Sale - Who's responsible?

View profile for Michael Dibben
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A new case examines conveyancers’ duties to avoid fraudulent property sales.
 
In August 2012 a solicitor Mr A’Court was approached by a man calling himself Mr Dawson, who instructed A’Court to act on his behalf in selling a property in Wimbledon.  Mr Dawson explained that his father had given him the house in 2008.  It was currently empty and he wanted a quick sale because he needed the money.  He told A’Court he was currently living in Maidenhead and produced utility bills and a bank statement addressed to him at the Maidenhead address.  He also produced a passport.
 
A’Court obtained a copy of the title register for the Wimbledon property from Land Registry.  The register gave Dawson’s address as the Wimbledon property, with an alternative address in Cambridge.  Dawson provided the answers to the standard property information form, including a statement that no building work had been carried out at the property.
 
In late September Dawson told A’Court he had agreed a sale at £430,000 on condition that the sale would be completed in 7 days.  When the buyer’s solicitor received their local search it showed that building work had been carried out at the property and they requested the relevant planning and building regulations certificates, along with a statutory declaration from Mr Dawson in respect of his use of a rear accessway.  Dawson asked A’Court if these were delaying tactics by the buyer, and A’Court reassured him they were reasonable enquiries.  The buyer’s solicitor then emailed, asking A’Court to confirm he had properly verified Dawson’s identity, and requested details of the hospital in Dubai where Dawson was employed.  This was the first A’Court had heard of his client being employed in Dubai, but he reassured the buyer’s solicitor he had checked Dawson’s passport, and that he would copy the email to Dawson to request the employment details.  On receipt of the copy email Dawson promptly withdrew from the sale, saying the buyer was trying to prolong the transaction, and he had other buyers waiting.
 
A few days later Dawson had agreed via his estate agent to sell the house to a Mr Purrunsing for £470,000.  A’Court sent the contract pack to Purrunsing’s conveyancer HOC.  HOC emailed a fairly common enquiry to A’Court asking for standard insurance against any risk arising from the gift in 2008, and blind copied the estate agent, who in turn copied the email to Dawson.  HOC also emailed an enquiry to A’Court asking for confirmation that A’Court was familiar with Dawson and had verified Dawson’s identity.  A’Court replied that Dawson was now abroad, and had not left any more documents relating to the property, but reassured HOC he had met Dawson, had seen his passport, and had utility bills showing his UK address ‘as notified to us’.
 
Contracts were then exchanged and the sale was completed two days later.  A’Court transferred the sale money to Dawson’s account as Dawson had instructed.  When HOC applied to register the transfer, Land Registry wrote to Mr Dawson at the Cambridge address, at which point it transpired that the man who instructed A’Court was not the real Mr Dawson, and the passport was a forgery.  Land Registry refused the application, Purrunsing sued HOC claiming his purchase money back, and they in turn claimed against A’Court.  The Judge decided that A’Court and HOC were equally negligent and therefore should each pay half of Purrunsing’s loss.
 
The case is a warning to all conveyancers to undertake proper due diligence.  In this case the seller’s solicitor was at fault in failing to spot a number of warning signs.  The most significant features were:
  • His client demanded a very fast sale
  • The seller did not live at property
  • The seller seemed unaware that any building works had been carried out at the property
  • The title register disclosed two addresses for the seller, neither of which were consistent with the seller’s current address
  • The seller could not provide utility or council tax bills for the property itself - only for the address where he was living
  • The seller had not at any stage told his solicitor that he was employed abroad, and when they were told this they did not make any further checks
  • The seller refused to produce evidence of his employment in Dubai
  • The seller withdrew from the first sale as soon as a question about his employment was raised, claiming the buyer was delaying, notwithstanding there were other legal enquiries still outstanding that would have taken longer to resolve
  • The property was unoccupied
  • There was no mortgage on the property 
  • The seller claimed the property had been given to him
  • The title register contained an alternative address for service that did not match the address  where the seller was living
The fault of the buyer’s conveyancer is perhaps a little more subtle.  Unusually in this case, and perhaps mindful if his client’s aversion to risk, he did enquire whether the seller’s solicitor knew the seller, and whether he had checked the seller’s identity.  Having done that, he should have realised the response was unsatisfactory and ambiguous.  Despite knowing his client was naturally cautious, he failed to advise the buyer that the seller’s solicitor did not have adequate information or documents relating to the seller’s ownership of the property, and should have appreciated and advised his client that there was a risk in proceeding with the purchase.  The Judge was of the view that the buyer would not have proceeded had he been properly advised of that risk.
 
The result of the case is pragmatic, in that the innocent buyer was properly compensated, but for conveyancers it raises more questions than answers.  When is it safe to undertake the legal work for a property sale, if the owner does not live at the property?  What safeguards are there against a risk of a passport being expertly forged?  To what extent should a buyer’s conveyancer pursue evidence that the seller’s conveyancer has undertaken due diligence against the seller, or is it better not to ask in the first place?
 
If you would like advice, please contact our Conveyancing team.

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