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Understanding Property and Mortgage Fraud: Value vs Risk Analysis

Author: Azizur Rahman  2 June 2014
4 min read

When the authorities start to look closely at property fraud, the issue of valuations always comes to the fore. Here, we outline why valuers and surveyors have to be seen to be completely scrupulous in all their dealings.

Property fraud never really goes away. It may become a hot topic in the media, there may be high-profile court cases but then the issue may disappear from view and receive very little coverage. But it is still there.

Having handled some of the biggest UK property fraud cases, we are speaking from experience when we say that such incidents are always occurring. And that puts valuers and surveyors in a very important place. The duty of a valuer can be fairly straightforward when it comes to a mortgage application. They examine the property, check whether it meets the criteria of that particular lender, report on its condition and give an estimate of its value. The potential lender then makes a decision on whether it would be prudent to loan a would-be buyer the money to complete the purchase.

While it is a fairly straightforward process, it is also one of great responsibility. The valuer may be the only person other than the buyer to actually inspect the property. But that does not mean that they are always acting free of any responsibility or scrutiny. Many mortgage lenders now have systems in place to monitor trends in valuations and flag up anything that smells even slightly of property fraud. Valuers have, as a result, been accused of fraud. With valuers, it is the same as in many other professions - when times are tight, instances of fraud become more common or, at the very least, more detectable.

Lenders do not like being taken for a ride any more than anyone else. They are dealing in huge sums and know that they have to be careful if they are to avoid losing much of it in ill-advised lending that could have been prevented if valuations had been honest. As a result, valuers have to be able to demonstrate that their activities are beyond reproach. Figures have been bandied about that suggest one in every 50 valuations may be worthy of investigation. This is a figure based on suspicions about a number of valuers across the UK and a calculation of how many valuations they are likely to be carrying out. It is not a scientific figure - in fact, it is more of a guess-timate – and yet the fact that lenders are doing the maths to work out such statistics indicates that valuers are under scrutiny. Lenders are now coming to view choosing the right valuer as part of their strategy to prevent fraud.

Placed between buyers or sellers and lenders, the valuer is in a unique position. A position that runs the risk of upsetting one party to a deal or, even worse, laying the valuer open to accusations of fraud. So what can they do to avoid this? Valuers have to be seen to be completely honest in all their dealings. If they are not they can cost lenders great amounts of money and damage their standing in a business sector where being able to act with credibility is essential. The Council of Mortgage Lenders (CML) and the Royal Institution of Chartered Surveyors (RICS) have produced guidelines that state that valuers must declare any discounts or incentives that could distort an agreed sale price; which is especially relevant for new houses. The guidelines state that anyone with concerns about a valuation should raise the matter with RICS. In such circumstances, valuers have to be able to show they have acted appropriately at all times.

Yet it could be the case that a valuer comes under investigation months or even years after a valuation was completed. Having successfully represented a number of clients in large property fraud cases, we know how one party in a deal can come under suspicion from the authorities simply because a person or company they did business with years ago becomes suspected of wrongdoing. So what can they do to make sure they can convince the authorities that they are completely above board in their dealings?

Valuers are like any other profession in that they face demands from clients, rivals and third parties and yet have to make sure they respond to these and stay on the right side of the law. At Rahman Ravelli, we advise companies on compliance and help them devise, introduce, run and maintain internal systems that remove the potential for corruption among staff. It is fair to say that whether the valuation business is booming or valuers are scrapping around for work, no one in the profession wants to spend any more money and effort on compliance than they have to. But as a raft of court cases from any profession can show, compliance is not an issue where corners can be cut. It may be more appealing to valuers to carry on as they are, believing that they either have no need to check for the potential for wrongdoing or that, if there is some, it will never be detected. That is the short-term easy option. The long-term outcome, however, could be convictions, financial penalties, hours spent dealing with the authorities and, perhaps most damaging, a huge blow to the company’s professional standing. Such reputational damage can only lead to a loss of business. After all, who wants to hire a valuer whose judgement has been shown to be untrustworthy?

It is only when such a stark picture is painted that many people consider the value of compliance. When such outcomes are considered the importance of complying with legislation is clear. But it is not just about being seen to be legally safe. Any firm of valuers or surveyors has to recognise the need to make sure that the people they are employing to place a price on property day after day are doing so without their judgement being impaired or corrupted by any outside influence. It is hard to gauge accurately how much wrongdoing is being committed when it comes to valuation of property. But the professional bodies involved believe it is going on to some extent, the lenders – the customers when it comes to valuations – are aware it needs to be cracked down on and the authorities have come to the point where they are actively looking for indicators of property fraud and evidence with which to bring prosecutions.

Any valuer worth their salt must recognise the worth of making sure their own house is in order.

Azizur Rahman C 09369

Azizur Rahman

Senior Partner

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Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.

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