It had been a long day, travelling back home from a month long holiday abroad with his wife and children. Mr. Aziz was glad to be getting back home, and he put the key in the lock of his front door of his house. However the key wouldn’t turn and to his astonishment, the door suddenly opened - in front of him, standing in his hall, was a stranger angrily asking what he thought he was doing trying to get into the house? Mr. Aziz, shocked, asked what the stranger was doing in his house?! The stranger said it was HIS house - he had just bought it the previous week and moved in….
Next thing the police are called and to cut a long and unpleasant story short, Mr. Aziz and his family ended up in a hotel for some time, having lost all the possessions in their house and also wondering if they had lost the house too. After a few weeks of expensive hotel and legal bills it became clear that an unknown fraudster had taken his identity and house while he was away, emptied it of contents and sold the house to the innocent purchaser. The fraudster then disappeared with the proceeds of sale. The innocent buyer, who had used a reputable firm of conveyancers, ultimately found the transfer to him by the fraudster was void – rendering him and his family both homeless and penniless.
The only good luck for the innocent buyer was that the buyer’s lender waived the mortgage debt, though it could have bankrupted him. The transfer may have been a fraud but the mortgage deed wasn’t and it would have been contractually enforceable against him even if it was not secured on the property. However the good news ended there as the innocent buyer lost the £100,000 or so of equity he had built up over his life….He also had some hefty legal bills to pay to get to the bottom of what had happened and initially the police had intended to charge him with the fraud.
Mr. Aziz also had some very expensive legal bills to settle as initially no-one believed him. He had to spend several thousand pounds on legal costs to prove his case, and no-one to claim the costs from. He also had to refurnish his house and meet the hotel bills for his family for quite a few weeks too, and again, the cost lay entirely with him.
Would it be any different if this happened to you? Probably not.
Any of us could return home one day to find a demand for repayment of a mortgage that a fraudster had arranged on our property, who has then disappeared and left us with the mess to sort out – from our own resources. Would our house insurance or any of the other normal insurances we hold cover the cost of the ensuing court battle or the repayment of the fraudulent mortgage? – Unlikely.
In another similar case the bank refused to accept that there had been a forgery and demanded the money, issuing proceedings that had to be expensively contested by the innocent owner. It eventually conceded that there had been a forgery – but not before months of worry and expense for the innocent owner.
Any conveyancer will know that fraud of every sort is the number one worry dealing with any transaction – from checking the identities of your own clients, other firms, fake emails, fake letters, fake bank accounts, Friday Afternoon Fraud, and so on. So cases like these are on the rise, for sure.
Why don’t we insure against such risk? Probability of Risk Occurrence v Impact of Occurrence
When it comes to risk in conveyancing all the focus is on not taking any risk on sometimes trivial conveyancing issues. Title policies are put in place for, what are realistically speaking, unenforceable restrictive covenants, for example. Chancel check cover is taken where in some cases there is no church in the area, and so it goes on. No-one is prepared to ‘take a view’ on anything, regardless of how trivial, because everyone is terrified of accepting Risk.
However in my view, property fraud is much more of a serious issue than any of these conveyancing irregularities, and the reason has to do between the difference between Probability of a Risk Occurring and Impact of a Risk Occurring.
The corners of the chart have these characteristics:
- Low impact/low probability – Risks in the bottom left corner are low level, and you can often ignore them in normal life and business.
- Low impact/high probability – Risks in the top left corner are of moderate importance – if these things happen, you can cope with them and move on. However, you should try to reduce the likelihood that they’ll occur. This is what good office processes, for example, should take care of.
- High impact/low probability – Risks in the bottom right corner are of high importance if they do occur, but they’re very unlikely to happen. For these, however, you should do what you can to reduce the impact they’ll have if they do occur, and you should have contingency plans in place just in case they do. However some things are of such high impact, even if unlikely, that contingency plans are not enough and they have to be treated as mission critical - such as property fraud and identity theft.
- High impact/high probability – Risks towards the top right corner are of critical importance. These are your top priorities, and are risks that you must pay close attention to. And so you do every day, as part of dealing with normal conveyancing processes.
A minor conveyancing irregularity is probably Low Impact/Low Probability (in 20 years I never came across one that ever resulted in a claim against the client). Even if there was a claim the Impact would be low – a relatively small payment (in the context of the value of the property) to buy someone off is the most that is likely to happen. So there you have Low Risk probability and Low impact. And insurance policies are taken out in the thousands…
However even though statistically the chances of fraud hitting your house, or an individual transaction are very low, the more you do, the more the risk builds. It is probably much more likely to happen than all those risks you insure on title defects policies though. Every single firm I speak to has been the subject of fraud attempts.
And what of the Impact – Horrific! You can lose the entire value of the property and also ruin your entire life, losing all the wealth you have acquired over a lifetime of work. And if the proverbial does hit the fan – who pays for the legal bills and hotel bills – you do – with money you don’t have, or have to borrow, as you can’t afford to let it go and lose everything?
So here we have High Impact (of nuclear proportions) but Low Probability. Most professional Risk Managers would suggest we do have contingency plans - such as insurance. But in general most conveyancers don’t really consider what insurance could be taken out, even though such unknown risk insurance has been around for years.
It is known as ‘Unknown Risks’ insurance. This is in contrast to the Known Risk insurance that is taken out on a daily basis for Low Impact/ Low Probability Risks such as title defects.
Interestingly, Unknown Risk insurance is probably what most US and Canadian purchasers take out when they buy property, not our Known Risk policies.
One of the first launched in this country was the First Title ‘Home Owner Protection Policy (‘HOPP”)’ a few years ago, soon followed by a product put together by Countrywide called the ‘Secure Conveyancing Insurance Policy’. These do cover you for all these unknown risks of identity theft, mortgage fraud and so on.
Despite the HOPP policy being aligned with the CML it seems that there is a very low take up of this cover even though the one off policy premiums are less than you would probably pay to cover your domestic appliances from breakdown. Very few conveyancers I speak to have even heard about it. Often the one-off premium is less than some premiums for Known Risk cover - though if you take out a HOPP you get the known risk thrown in too, as I understand.
Now I have no link in any way with First Title or any other insurer or intermediary but to me these seem a no-brainer, and I’m sure I will get one when I buy my next property. Its something that I think conveyancers should mention to their clients who should be increasingly aware of the risks of fraud.
There are also advantages for the conveyancer since if the unexpected event arises the issues will be dealt with under the policy rather than the client trying to create some sort of negligence claim or complaint against the conveyancer – a not insignificant point these days!
Had Mr. Aziz had one, the insurer would have paid for the costs of proving that he was the victim of forgery. It may have covered his costs for accommodation and the loss of his contents. Had the innocent buyer had one, the mortgage would have been repaid by the insurer and his lost deposit paid to him under the terms of the policy, possibly also the cost of accommodation and other losses.
Personally that’s just one risk I would like to have covered so I can sleep better at night and not fear that final demand from a bank I have never heard of…..