Claims for compensation over solicitor mortgage fraud shoot up

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By Legal Futures

27 September 2011

Mortgage fraud: 80% of the value of open claims against the compensation fund

The number of claims against the Solicitors Compensation Fund (SCF) arising out of mortgage fraud have shot up by 140%, it has emerged.

However, the time lag in claims reaching the SCF means the new figures disguise a “marked decrease” in mortgage fraud cases, according to the Solicitors Regulation Authority (SRA).

The most recent figures from the SCF – to 31 July – reveal that the number and value of open claims relating to mortgage fraud have increased from 286 claims worth £106m at the same point in 2010 to 686 claims worth £158m.

An SRA report said: “Analysis is being undertaken to identify those mortgage claims that are from institutions wishing to preserve their position and those claims where there is a genuine grant application that needs to be pursued.

“At the date of this report, 208 mortgage claims with a value of £23m have been identified as being ‘on hold’ awaiting potential insurance settlements or property sales.”

Mortgage fraud makes up 80% of the value of open claims against the SCF, and 35% of claims by number. Overall the fund is dealing with 1,953 claims worth £197m – figures that are down 30% and up 38% respectively over the year.

An SRA spokesman said the increase in the number of claims coming through to the SCF is due to the increase in cases from two or three years ago. Those claims are now being processed and showing up in the SCF’s statistics.

However, he added: “We have seen a marked decrease in the number of mortgage fraud cases in recent times. The number of cases being reported to us are at around 40% of the levels that they were when it was on the increase, and many of those cases are at the lesser end of the scale, for example for unregistered charges.

“The SRA has worked hard with other partner organisations over the last couple of years to address the situation, specifically turning information gathered into action – for example, the creation of a dedicated mortgage fraud reporting line – and this has undoubtedly helped reduce the number of cases being reported.”

Meanwhile, Samantha Barrass, the SRA’s executive director for supervision, risk and standards, has called on smaller conveyancing firms to take advantage of alternative business structures (ABS) – and said the SRA hoped it will be able to start taking applications from prospective ABSs in December.

Speaking at a Conveyancing Association event, Ms Barrass said: “Once we’re ready to take applications, I don’t think we’ll just see the big firms enter the ABS market. There is a huge opportunity for high street firms and local estate agents, so I would be surprised if they didn’t attempt to use these reforms to re-focus their business and widen their service offerings.”

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