Recessionary Woes – Mortgage Fraud

September 1, 2009

On Friday, 14 August 2009, the Northern Ireland Court Service issued its statistics for the second quarter of 2009 relating to new Mortgage Repossession Actions. The statistics revealed that 954 new Mortgage Repossession Actions were initiated, compared to 584 for the equivalent quarter in 2007.

The figures are not surprising given the current credit crisis and downturn in the property market. Coincidentally, the figures were published in the same week that it was announced that a Pre Action Protocol for Mortgage Repossession Actions would be introduced on 5 October 2009.

One immediate consequence of the economic downturn is that lenders may realise the true extent of Mortgage Fraud which may have been occurring throughout the perceived boom. Writing at the height of the boom, Grainne Langdon-Down, a freelance journalist, noted, “Mortgage Fraud is usually masked in a rising market because Lenders will get their money back, even if the Borrower goes bust”. It is more likely that lenders will now find themselves in the unfortunate position of having to take possession of properties which may be in negative equity. When proceedings are issued against the Borrower for any shortfall upon the subsequent sale of the premises the actual extent of Mortgage Fraud may be realised.

On Friday, 21 August 2009, a Chelsea Building Society announced that it had been the victim of Mortgage Fraud after revealing a £41,000,000 loss on its buy to let and self certificate loans. One other Building Society has revealed that it is allocating £270,000,000 in the first 6 months of this year to cover potential loss for fraud and professional negligence. It is therefore evident that lenders are experiencing the fallout of the property boom. While at the height of the property boom lenders may have faced elaborate forms of Mortgage Fraud such as organised crime and inflated valuations, the credit crunch may see those desperate to obtain finance resorting to direct deposit schemes, the nondisclosure of incentives and kickbacks, stamp duty relief fraud, foreclosure rescue fraud and the production of falsified vouching documentation.

It is clear that during boom or bust lenders will always be exposed to the realities of Mortgage Fraud. We can provide advice on specific matters such as professional negligence, misrepresentation and the recovery of mortgage shortfall. Should you have any queries, please do not hesitate to contact Aaron Moore.

Please note: The content of this article is for information purposes only and further advice should be sought from a professional advisor before any action is taken.

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