Identity checks vital to combating fraud in property transactions
A case in the ACT Supreme Court earlier this year, Astell v Australian Capital Territory, has once again demonstrated the need for conveyancers, lawyers and real estate agents to be vigilant to ensure that their clients do not become victims of fraud or identity theft.
Real estate agents engaged to look after property while owner overseas
A Canberra woman left her home to be managed by a real estate agency while she worked in South Africa and instructed the agent to correspond with her via email while she was away. After her departure, an unknown person pretending to be the home owner emailed the agents telling them to correspond through a new email address.
The agents did not take any of the obvious steps to check that the new email address was not being provided by a scammer, such as emailing the owner’s original email address to seek confirmation or getting in touch with the owner by phone. (For more information about payment redirection scams, please see Business email compromise scams conning Australians out of millions.)
As it turned out, the substitute email address belonged to an overseas-based criminal syndicate which had devised a plan to steal the owner’s identity, sell her house and pocket the proceeds.
Fraudsters ask agents to sell property and transfer money overseas
After some time, the fraudsters told the agents to sell the house, which they did – for $430,000. The fraudsters engaged a Canberra law firm and contracts were exchanged on the sale. Those who perpetrated this elaborate scam must have known a number of details of the woman’s identity, as they managed to forge her signature on the sale documents.
The fraudsters then phoned the agents and told them to transfer the sale money to an account in Indonesia, which they did. The owner of the house only discovered this when she contacted the agents to enquire about maintenance of the property and to ask why she had stopped receiving rental payments.
Property owner sues ACT government because registrar-general approved fraudulent sale
Understandably, the owner was aghast to discover that the property had been sold. By then the money had vanished and the trail had gone cold. Despite the investigations of local and international police, the perpetrators of the scam could not be identified or caught. Police concluded that the woman was the innocent victim of a criminal syndicate that had stolen her identity.
The owner sued the ACT government on the basis that she lost the property through a fraud that was not picked up by the registrar-general, who had approved the sale. Interestingly, the ACT government attempted to reject the owner’s claim, stating that she needed to take action against the fraudsters before claiming from the government.
However, the judge was not swayed by this argument, awarding the owner $546,268 for the value of the property, plus expenses, loss of net rent and interest on rent.
Law relating to fraud and conveyancing in NSW
If this fraud had taken place in New South Wales, the owner of the house would have had to take a different course of action. She would have first needed to sue the real estate agents and the lawyers who facilitated the sale. In fact, it is likely that the real estate agents and the solicitors would have been joined to the same legal action.
If they were found innocent of negligence, the victim could then have made a claim on the Torrens Assurance Fund. However, given that neither the real estate agents nor the solicitors who were engaged to complete the transaction had performed any identity checks, it seems unlikely that they would have been found to be innocent of negligence.
Standard for verification of identity
This case shows the importance of having good risk management procedures and following them. Verification of identity is vital. The Verification of Identity Standard for conveyancing transactions is set out in Schedule 8 of the Model Participation Rules of the Australian Registrars’ National Electronic Conveyancing Council.
I require clients who are overseas to have their identity verified at the embassy. Domestic clients must come into our office or have their identity verified at a post office.
Given the value of even a humble property and the corresponding size of any professional indemnity claim against a conveyancer, solicitor or real estate agent, you would think that such professionals would not make any exceptions to the rule about verifying identity.
“Let me take the documents away and get them signed”
Similarly, it seems almost impossible to imagine that someone would turn up to a property professional’s office in the hope of selling or mortgaging a property without identity checks being performed.
And yet it happens. I’ve had someone come to my office with the title deed to a property which was owned by someone else and ask me to “draw up the documents so that I can take them away and get them signed by the owner”.
When I explained that he needed to return with the property’s owner – and the owner’s identification – he promised to do so. Unsurprisingly, I never heard from him again.
As the Canberra case demonstrates, property transaction fraud is costly. When professionals let their guard down, the consequences can include significant adverse publicity and reputational damage. My advice to all property professionals is to err on the side of caution.
For more information please see Australian victim of identity theft receives US$1.2 million damages bill from US court.