INSIGHT: Making sure everything’s “quite right” on a property transaction
As lawyers and conveyancers, we must ensure that all our “ducks are in a row” before we complete property transactions for our clients. We aim to ensure buyers know what they’re buying and the seller gets their purchase money. We also have to carry out a number of checks to minimise the chances of fraudulent transactions.
Avoiding fraud on property transactions
The scope for fraud in property sales is wide and there are various regulations and practice notes to help us thwart fraudsters.
For example, when we receive new instructions, we must comply with the Money Laundering Regulations. These regulations were set up to prevent fraud and other criminal acts. They require solicitors to check their client’s details in a process called “due diligence” and then monitor their client’s activities. These anti-money laundering identity checks as well as our checks on the ownership of properties are a crucial part of the conveyancing process.
Seller’s solicitors also owe duties the buyer
It might interest you to know that lawyers acting for a property seller also owe certain duties to the buyer. These duties arise when the seller’s solicitor receive the purchase monies from the buyer and then hold it on trust for the buyer until completion takes place. If a seller’s conveyancer does not carry out proper checks and the seller is consequently able to defraud a buyer, then the conveyancer could be liable for the buyer’s losses.
This is what happened in a recent case. The decision is a warning to all conveyancers to make sure everything is in order before pushing on to completion.
What happens if a solicitor doesn’t carry out the right checks
In Purrunsing v A'Court & Co (a firm) and another  EWHC 789 (Ch), A’Court & Co acted for the seller of a vacant property. Unfortunately, A’Court & Co did not obtain adequate proof that the seller owned the property he was selling. When a first buyer was found, the seller backed out after A’Court & Co asked him for information about his employer. However, rather than push for answers, A’Court & Co proceeded with on a second transaction on the seller’s behalf. They passed on the information they had to the buyer’s conveyancer who did not question it. Exchange took place and the buyer’s conveyancer transferred the buyer’s purchase money to A’Court & Co who in turn transferred the money to the seller on completion. In fact, it turned out that the seller did not own the property and the buyer had effectively been defrauded of the purchase money.
The buyer argued that A’Court & Co, were in breach of the trust owed to the buyer for handing over the money to the seller before proper completion. The court agreed finding that A’Court & Co should have investigated the seller’s (their client) instructions more thoroughly and particularly the ownership of the property. Had they done so, they would have discovered that the property was not registered in the seller’s name and that the seller’s passport – which had been proffered to prove their identity – was in fact, false. A’Court & Co had therefore failed to carry out their obligations under the Money Laundering Regulations – and this failure had led to and increased the buyer’s loss.
While A’Court & Co acted honestly throughout their dealings with the buyer, the court would not exercise their statutory discretion under section 61 of the Trustee Act 1925 to excuse them the breach of trust. Their behaviour was unreasonable and outside the standard of reasonableness required by the 1925 Act to trigger the court’s discretion to excuse their breach of trust. When it came to handling the buyer’s purchase monies, the seller’s solicitor had just as great an obligation to the buyer as did the buyer’s solicitors.
As a result of the breach of trust, the buyer was entitled to receive compensation. The buyer’s conveyancer was also liable for the loss for not telling the buyer about the lack of information on the seller’s entitlement to sell the property.
What are the warning signs that all might not be “quite right” on a property transaction
Fraud is on the increase in the property market. We work hard to ensure that our clients do not fall victim to the fraudsters. In particular, we take our duty to comply with the Money Laundering Regulations very seriously. The following are some examples of issues that trigger further investigation:
- the property for sale is vacant;
- the seller’s details are incomplete;
- the seller does not provide all the information needed;
- there is no proof of the seller owning the property;
- we are asked to deal with the transaction quickly;
- the value of the property is relatively high compared to other similar properties;
- we do not have or cannot obtain documents proving the seller is the owner;
- information found within the documents is inconsistent; or
- information found within the documents provided by the seller and that which appears in official searches (e.g. those obtained from local authorities) is inconsistent.
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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.
This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.