Avoiding Mortgage Fraud in Australia [1 ed.] 9780409338874, 0409338877

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Avoiding Mortgage Fraud in Australia Toolkit for Mortgage Professionals

Matthew Bransgrove LLB (Bond) Solicitor, New South Wales and the High Court of Australia Principal, Bransgroves Lawyers, Sydney

LexisNexis Australia 2015

For my beautiful wife Lesa

AUSTRALIA

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National Library of Australia Cataloguing-in-Publication entry

Author: Title: Edition: ISBN: Notes: Subjects: Dewey Number:

Bransgrove, Matthew. Avoiding mortgage fraud in Australia: Toolkit for mortgage professionals. 1st edition. 9780409338867 (paperback). 9780409338874 (ebook). Includes index. Mortgage loans — Law and legislation — Australia. Mortgages — Australia. 346.9404364

© 2015 Reed International Books Australia Pty Limited trading as LexisNexis. This book is copyright. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner. Neither may information be stored electronically in any form whatsoever without such permission. Inquiries should be addressed to the publishers. Inquiries should be addressed to the publishers. Typeset in Helvetica and Minion. Printed in Australia. Visit LexisNexis Butterworths at www.lexisnexis.com.au

About the Author Matthew Bransgrove is senior partner of Bransgroves Lawyers, a firm which specialises in serving the mortgage industry. He has practised exclusively in the field of mortgage and funding law since 1998. He is a co-author of the 2008 LexisNexis textbook, The Essential Guide to Mortgage Law in New South Wales, and its 2014 successor, The Essential Guide to Mortgage Law in Australia. He has presented over 15 papers for the New South Wales College of Law on mortgage-related topics. He has authored two mortgage-related articles for the Australian Law Journal and has written 14 mortgage-related articles for the NSW Law Society Journal. His academic works have been thrice cited with approval by the Supreme Court of New South Wales.* He has acted several times as an expert witness in mortgage fraud proceedings in the Supreme Court of New South Wales. Matthew Bransgrove has acted for banks, building societies, securitised funders, wholesale mortgage funds, retail mortgage funds, debenture funds, mortgage managers, aggregators and brokers in relation to mortgage fraud fallout. He has been commissioned to consult on lending manuals, operations manuals, aggregation and origination deeds. *

Chandra v Perpetual Trustees Victoria [2007] NSWSC 694; Perpetual Trustees Victoria v Kirkbride [2009] NSWSC 377; Bank of Western Australia v Ellis J Enterprises [2012] NSWSC 313.

Preface The rise of fraud Twenty years ago there was no call for a book like this. The underwriting criteria and methodology adopted by banks and building societies were closely guarded secrets. Borrowers would attend the branch and be interviewed by the manager who knew them because they came into the bank frequently for teller transactions. Things moved at a slow and deliberate pace. There was little room for fraudsters. Everything changed with the rise of securitised lending in the 1990s. This drove the emergence of the loan broker as a new profession. Closely guarded secrets such as loan criteria are now explicitly spelled out to brokers during the accreditation process. This dispersal of knowledge has demystified the mortgage-lending process for an ever-growing pool of potential fraudsters. Email has driven the dispersal of knowledge even wider. The practice of copying people in on email messages to ‘keep them in the loop’ has led to a vast increase in the number of real estate agents, lawyers, paralegals, accountants, clerks and borrowers who are learning all about the steps involved in writing a loan, and being given perfect copies of the documents involved. At the same time, the means to commit fraud has become ever more accessible. In the last 10 years, electronic bank statements, spreadsheets, graphics programs, high-resolution colour scanners and printers, disposable mobile phones, cheap laptops, free Wi-Fi hotspots, websites and social networking have each enhanced the ability of fraudsters to steal identities, create identities, accurately falsify bank statements, tax returns and employment records, and even fabricate fictitious employers, accountants, valuers and solicitors.

Torrens ceases to assure1 In addition to the rise of fraud, the last 10 years has also seen a decline of the protection rendered to lenders by the Torrens system. Australian mortgage lenders have for a long time been protected by Torrens Title. As long as lenders were not actually complicit, mortgage fraud was a troubling, but not overly worrying, spectre. Their title was indefeasible and the state would provide the funds necessary to redeem their mortgage. As a result, the appropriate level of concern was often absent. This complacency was understandable given the reverence with which the courts treated indefeasibility. Rothman J provided an example in Perpetual Ltd v Barghachoun [2010] NSWSC 108 at [25]: Indefeasibility of title is the most fundamental feature of the land registration system in Australia. Under it, the State guarantees the title of those with a registered interest in land, to the extent of that interest. The foregoing is trite. But the principle is so important, and adherence to it so essential, that registered title is able to be challenged, under the legislative provisions in each of the States, only in the most exceptional circumstances. The Torrens system has enabled conveyance with certainty in Australia and, even though there may be occasions where notions of comparative justice may seem to have been transgressed, it is essential that indefeasibility of title is not undermined. All this has changed. Several factors have combined to erode indefeasibility and make lenders in Australia, for most practical purposes, no better off than lenders in a system of title by deeds. The problem is that, like a frog in slowly warming water, the practices of lenders and their solicitors are not adjusting to this new reality. The new reality is that lenders now face loss of all their capital unless they, and their solicitors, take active and earnest steps to prevent impostor fraud. In many cases, the

commercial realities of high-volume loan processing make this impossible — pointing to a clear requirement for title insurance. The first of these erosive factors was the realisation (by the courts) that ‘all monies mortgages’, which is to say mortgages that secure obligations contained in contracts extraneous to the register, while technically indefeasible, secured nothing. This is because forged documents extraneous to the register are seen to be nullities. Although the roots of this line of authority lie in a 1992 decision, no one seemed to notice until during the credit boom when invocations of it began to come thick and fast: Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745; Printy v Provident Capital Ltd [2007] NSWSC 287; Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694; Yazgi v Permanent Custodians Ltd [2007] NSWCA 240; Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 and Provident Capital Ltd v Printy [2008] NSWCA 13 being only a sample. Notwithstanding this string of authorities, lenders continue to use ‘all monies’ mortgages for reasons of convenience. They do so now in the full knowledge that their security does not benefit from indefeasibility. If the lender is not aware of this, then their solicitor may be found to be negligent — see Vella, above. The second of these erosive factors, at least in New South Wales, is the existence of the ‘registration stopper’. This was explained in evidence by an officer of Land and Property Information (LPI) in the case of Challenger Managed Investments Ltd v Direct Money Corp Pty Ltd (2003) 59 NSWLR 452; [2003] NSWSC 1072 as follows (at [25]): A so called ‘Registration Stopper’ is an electronic flag that may be entered into the titling data base operated by the Registrar-General and known as the Integrated Titling System (ITS) so as to ensure that dealings with that land are referred to the person directing the notification for further investigation, and possibly for requisition, prior to registration. This notification is used as an administrative tool where the Registrar-General has concerns about possible transactions but does not have the evidence to warrant the

placement of a Registrar-General’s caveat under s 12(1)(e) of the Real Property Act 1900. A Registrar-General’s caveat would prohibit the registration of any dealings with the land whereas the ‘registration stopper’ requires that dealings be further investigated prior to being registered. A ‘registration stopper’ does not appear on a search of the Register folio. The problem with registration stoppers is that they make the face of the register unreliable. This undermines a key plank of the Torrens System, which together with indefeasibility, used to make mortgage lending a safe pastime. Today, a lender, relying on the face of the register, can settle a loan, hand over the money, but then find the LPI will not accept the document for registration because (for example) a fraud investigation is underway. Although this risk can be met by settling at the LPI, and not handing over the advance funds until the mortgage is actually registered, commercial realities make this, for the most part, impractical. The third, and most significant, of these erosive factors has been recent statutory curtailments to indefeasibility within the Torrens Acts themselves in Queensland,2 New South Wales3 and Victoria4 and preliminary policy steps in the same direction taken in South Australia5 and Western Australia6. These require lenders to take reasonable steps to identify the mortgagors or risk deregistration of their mortgage. To illustrate the issue, consider the New South Wales provision. Under s 56C(4) the RegistrarGeneral may ask questions of the mortgagee as to the steps taken to confirm the identity of the mortgagor, or inspect records of the steps taken. Failure by the mortgagee to comply with such a request may lead to refusal to register or rejection of the registration of the mortgage: s 56C(5). Under s 56C(6) the Registrar-General can cancel any recording with respect to a mortgage if the Registrar-General is of the opinion that the execution involved fraud against the registered proprietor, and that the mortgagee failed to comply with s 56C(1), or had actual or constructive notice that the mortgagor was not the same person as the person who was, or was about to become, the registered proprietor of the relevant land.

While the formulation ‘reasonable steps’ sounds eminently reasonable, and reg 16 of the Real Property Regulation 2014 (NSW) assures lenders that a ‘mortgagee is to be considered as having taken reasonable steps’ to check the identity of the person who executed the mortgage, if the mortgagee ‘has taken the steps set out in the Verification of Identity Standard’,7 nevertheless, lenders cannot reassure themselves by following a checklist. The devil is in the detail, and in particular in s 56C(6)(b)(ii) of the Act which empowers cancellation of registration if the lender had ‘constructive notice of the fraud’. The reference to ‘constructive notice’ of fraud is a significant departure from traditional Torrens principles. The foundation case which established the parameters of the ‘fraud’ exception to Torrens indefeasibility was Assets Co Ltd v Mere Roihi [1905] AC 176, where the Privy Council stated at 210: … by fraud in these Acts is meant actual fraud, ie dishonesty of some sort; not what is called constructive or equitable fraud… The mere fact that he might have found out fraud if he had been more vigilant, and had made further inquiries which he omitted to make, does not of itself prove fraud on his part. Thus, s 56C(6)(b)(ii) represents a revolution in one of the key aspects of indefeasibility. Whereas lenders previously need not have concerned themselves with facts that might put them on constructive notice of a fraud, now they must make all enquiries suggested by facts known to them. Constructive notice is also embedded in the regulations, which prescribe reasonable steps. Regulation 11B(3)(b) states ‘In verifying the information from the relevant document, the mortgagee must be reasonably satisfied that … there is no apparent discrepancy between the information collected from the mortgagor and the information contained in the document …’. Lenders might console themselves that, if their loan Lending Managers are alert and their solicitors on their toes, indefeasibility will continue to flow as before. Unfortunately, the cases show that when a fraud has taken place everyone’s conduct is examined under a microscope — and, like it or

not, the wisdom of hindsight is often applied. Busy loans officers and solicitors, who might have dozens of loans crossing their desks daily, are being grilled in the witness box about why they did not notice tiny disparate details on documents they received weeks apart. To a very large extent, lenders and solicitors should expect res ipsa loquitur to apply: if there was a fraud and they did not detect it, they will likely to be found not to have taken reasonable steps. The case of Perpetual Trustee Company Ltd v CTC Group [2012] NSWCA 252 (special leave to appeal dismissed, [2013] HCASL 16) is demonstrative. The lender alleged that CTC did not take reasonable care to identify the mortgagor. The trial judge was sympathetic to the duped originator, finding that even though CTC obtained a photocopy of the mortgagor’s passport, the possibility remained that a family member with a resemblance to the mortgagor impersonated him. Thus, the trial judge was not satisfied that there was any breach of duty. In the Court of Appeal, Macfarlan JA (with whom Meagher and Barrett JJA agreed) essentially applied res ipsa loquitur to overturn the trial judge’s finding ([2012] NSWCA 252, above, at [26]: The primary judge’s unchallenged findings were that [the mortgagor] did not sign the application … . If [the officer of CTC] did not make the requisite comparison between the signatory of the application and the original passport photograph, he failed to act with reasonable care … . The fact that the application was submitted despite [the mortgagor] not having signed it, strongly suggests that he did not. Thus, much of the efficacy of indefeasibility has been removed. The duty to detect impostor fraud, and the risk if they fail, has now fallen on lenders. They need to make changes to procedures to increase their vigilance, and solicitors need to advise their lender clients of the new realities and the potential need for title insurance.

A legal environment sympathetic to fraudulent borrowers Borrowers who commit mortgage fraud by overstating their income, providing false documents and lying about their circumstances are treated with benevolent indulgence by the law. Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104 illustrates the problem. Patten AJ granted relief under s 70 of the old Consumer Credit Code despite the borrower knowingly signing false documents to procure the loan, his Honour holding at 88: Whether I should hold the mortgage unjust in this case involves a balancing exercise. On the one hand are the circumstances that the Defendants speak English as their first language; were experienced borrowers; had the services of a solicitor; were extremely anxious to obtain the loan; and were prepared to sign false statements and procure false certificates. On the other hand, the beneficial nature of the Code indicates that it was intended to protect the unsophisticated and meagrely educated, such as the Defendants, from their own foolishness. Given the means of the Defendants and their credit history, the Plaintiff, in my view, was aware, or would have been aware, had it made the most perfunctory of enquiries, that the Defendants were not capable of servicing the loan even at the lower rate of interest and could only satisfy their obligations by selling the mortgaged property … (emphasis added) This decision was affirmed on appeal: Cook v Permanent Mortgages Pty Ltd [2007] NSWCA 219. Neither the trial judge nor the Court of Appeal referred the papers to the Director of Public Prosecutions for investigation and prosecution of the borrower’s fraud, presumably because such action would undermine the beneficial nature of the legislative framework. The ‘beneficial nature’ of the legislative framework is also seen in s 117(1) (c) of the National Consumer Credit Protection Act 2009 (Cth) which

requires credit licensees (lenders and brokers) to take reasonable steps to verify the consumer’s financial situation. Thus, they may not rely on the borrower telling the truth because if they do they will be liable to a substantial civil penalty. It is not just the legislation which indulges fraudsters. In Bendigo and Adelaide Bank v Stamatis [2014] NSWSC 1233, the son gave evidence that he had forged his parents’ signatures on a mortgage. The handwriting expert agreed and the judge so held. In assessing the son’s credibility, the judge took into account that, in addition to his ‘gross dishonesty’ in mortgaging his parents’ house without their permission, the son had been convicted of four counts of supplying a commercial quantity of drugs. Nevertheless, the judge noted the son in the witness box ‘seemed honest and intelligent’ and did not refer the papers to the Director of Public Prosecutions. Instead his wrath was reserved for the lender, whose conduct in attempting to enforce the mortgage he found unconscionable. While criminal sanctions of obtaining money by deception exist they are rarely enforced against borrowers who make false declarations and provide false documents. So long as they intended at the time to repay the money, they are considered to be above the law. There are virtually no instances of prosecutions being undertaken. The result is a legal environment where borrowers commit fraud with relative impunity as they are ‘consumers’. It is the job of the lenders and brokers to catch fraud and it is they who are penalised if they do not. This fraud-tolerant environment provides no disincentive to fraud, which tends to increase its incidence. And it is this lack of disincentive which may well also encourage its continuation into the future. The blame game As the effects of rising fraud and the demise of indefeasibility have made themselves felt, lenders have increasingly responded by attempting to shift the loss for mortgage fraud onto the shoulders of other parties involved in the transaction. Thus, the last few years have seen an explosion of reported

cases in which lenders have joined other lenders, originators, mortgage managers, custodians, brokers, valuers and solicitors. Consequently, these mortgage professionals have all seen their business risks and insurance premiums rise dramatically. Accordingly, it is now incumbent on all mortgage professionals to learn how to avoid mortgage fraud through education and by incorporating fraud avoidance systems into their procedures. 1

This section is an adaptation of the author’s February 2014 article, ‘Torrens Ceases to Assure: A Wake-Up Call for Lenders’, in the Australian Law Journal ((2014) 88 ALJ 82), reproduced with kind permission of the editor.

2

Land Title Act 1994 (Qld) ss 11A and 11B.

3

Real Property Act 1900 (NSW) s 56C.

4

Transfer of Land Act 1958 (Vic) ss 87A, 87B and 87D.

5

Registrar-General’s Verification of Identity Policy, 24 June 2013, see .

6

Registrar and Commissioner of Titles Joint Practice: Verification of Identity, 20 June 2012, see .

7

Schedule 8 to the NSW Participation Rules for Electronic Conveyancing. Version 2 of the participation rules were determined on 29 August 2014 by the Registrar General pursuant to section 23 of the Electronic Conveyancing National Law (NSW) which draws its force from and is an appendix to Electronic Conveyancing (Adoption Of National Law) Act 2012 (NSW).

Acknowledgements I would like to thank Hayley Moore at LexisNexis for her vision in accepting my proposal and her patience in seeing it through to actuality. I would also like to thank Kate Cooper, my faithful colleague for the last eight years. Kate, who often seems to be able to detect mortgage fraud from the way the telephone rings, very kindly read the manuscript through several times and made many key suggestions. Finally I would also like to thank my beautiful wife for her unstinting support and encouragement, even though it meant many lost Sundays away from her and our sons Edmund Herbert and Rupert James. Matthew Bransgrove Sydney June 2015

Author’s Note I have made reference to numerous reported decisions. In these instances I have endeavoured to make the description of the fraud faithful to the reported decision. I have also described multiple frauds by reference to press releases from the Australian Securities and Investments Commission (ASIC). In these instances I have also endeavoured to make the description of the fraud faithful to the press release. In addition, I have provided multiple case studies. Except where I have given a case citation or newspaper article as the source, these should be considered fictional, with all names made up and all occupations of victims invented. Nevertheless, in these fictional case studies the modus operandi of the fraudsters, and the behaviour of the victims and lenders, are all based on real-life frauds encountered in my professional career or extracted from reported decisions.

Table of Cases References are to paragraphs Baira v RHG Mortgage Corp [2012] NSWCA 387 …. 10.4 Bank of Western Australia v Tannous (No 4) [2013] NSWSC 182 …. 10.4 Bendigo and Adelaide Bank v Stamatis [2014] NSWSC 1233 …. 10.4, 29.2 Butler v Vavladelis [2012] VSC 186 …. 32.1 Challenger Managed Investments Ltd v Direct Money Corp Pty Ltd (2003) 59 NSWLR 452 …. 6.8 Chandra v Perpetual Trustee Victoria Ltd [2007] NSWSC 694 …. 6.4 Charter Finance v M Abou-Antoun [2009] NSWSC 247 …. 27.7 Commonwealth Bank of Australia v Saleh [2007] NSWSC 903 …. 16.4 Director of Public Prosecutions v Bulfin [1998] VSC 261 …. 35.2 First Mortgage Managed Investments Ltd v Basil James Pittman [2012] NSWSC 1332 …. 27.8, 27.9 Ginelle Finance Pty Ltd v Diakakis [2007] NSWSC 60 …. 27.11 Hancock, by her tutor, Proctor v JAS Ventures Pty Ltd [2007] NSWSC 1 …. 27.6 Heperu Pty Ltd v Belle [2009] NSWCA 252, 26 August 2009 …. 7.3 Heperu Pty Ltd v Morgan Brooks Pty Ltd (No 2) [2007] NSWSC 1438 …. 30.15 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10 …. 27.13, 35.6 Jenkins v R [2004] HCA 57 …. 35.2

Karamihos v Bendigo and Adelaide Bank Ltd [2013] NSWSC 172 …. 10.4 Knowles v Victorian Mortgage Investments [2011] VSC 611 …. 32.1 Landa v Perpetual Trustees Victoria [2013] NSWSC 1685 …. 30.15 Mercantile Mutual Life Assurance v Gosper (1991) 25 NSWLR 32 …. 6.11 Michalopoulos v Perpetual Trustees Victoria Ltd [2010] NSWSC 1450 …. 30.14 Miro v Fu Pty Ltd [2003] NSWSC 1009 …. 19.2 National Australia Bank Ltd v Zerafa [2013] NSWSC 1515 …. 15.2 Permanent Custodians Ltd v Hoey [2009] NSWSC 1073 …. 22.3 Permanent Custodians v Tony Geagea [2010] NSWSC 117 …. 27.16 Permanent Mortgages Pty Ltd v Cook [2006] NSWSC 1104 …. 33.1 Permanent Mortgages Pty Ltd v Michael Robert Cook and Karen Cook [2006] NSWSC 1104 …. 32.1 Perpetual Ltd v Rocco Costa and Santina Costa [2007] NSWSC 1093 …. 22.2, 30.14 Perpetual Trustee Co Ltd v Albert and Rose Khoshaba [2006] NSWCA 41 …. 32.2 Perpetual Trustee Company v Khoshaba [2006] NSWCA 41 …. 10.4 Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328 …. 30.14 Printy v Provident Capital [2007] NSWSC 287 …. 6.7 Prothonotary of the Supreme Court of NSW v Alcorn [2007] NSWCA 288 …. 6.5 Provident Capital Ltd v Gould [2009] NSWSC 1458 …. 18.4 Provident Capital v John Virtue (No 2) [2012] NSWSC 319 …. 35.14 Provident Capital v Naumovski [2013] NSWSC 40 …. 10.4

Provident Capital v Papa [2013] NSWCA 36 …. 10.4 R v Jenkins [2000] VSC 503 …. 35.2, 35.8 R v Jenkins [2002] VSCA 224 …. 35.2 St George Bank Ltd v Trimarchi [2004] NSWCA 120 …. 32.6 Superior Diamond Products Pty Ltd v Simon Peter Camilleri [2006] NSWSC 1169 …. 34.2 Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 …. 27.13, 35.6 Wilson v Fitzsimons [2006] NSWSC 1318 …. 26.2

Table of Statutes References are to paragraphs Contracts Review Act 1980 (NSW) …. 10.3, 10.4, 27.9, 32.1 Friendly Societies Act 1986 (Vic) …. 35.2 Land Title Act 1994 (Qld) s 11A …. 27.34 s 11B …. 27.34 ss 138–152 …. 30.2 Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 6 …. 18.4 Real Property Act 1900 (NSW) s 12(1)(e) …. 6.8 s 56C …. 27.34 Transfer of Land Act 1958 (Vic) s 87A …. 27.34 s 87B …. 27.34 s 87D …. 27.34

Contents About the Author Preface Acknowledgements Author’s Note Table of Cases Table of Statutes

PART 1

TACTICS

Chapter 1 False Websites The domain The content Digital footprint Chapter 2

False Emails

Chapter 3

False Social Media

Chapter 4

False Telephone Numbers

Chapter 5

False Documents

Chapter 6 False Certificates of Title Replacement certificates of title Stolen certificates of title Improperly surrendered certificates of title Forged certificates of title Chapter 7

False Bank Cheques

Washed cheques Stolen blanks Fraudulently obtained or stolen cheques Counterfeit cheques Detection Chapter 8 False Identities Identity theft Identity substitution Identity tweaking Identity fabrication Chapter 9 False Professionals Public professionals register Accountants Solicitors Real estate agents Valuers Quantity surveyors Private certifiers Builders Chapter 10 False People (Patsies) Chapter 11 False Witnesses Chapter 12 False Companies Registration date Company name and ACN Directors and shareholders History Dates and places of birth Reading a company search Fraudulent changes to the register Chapter 13 False Employers How to detect a false employer

Telephone checks False payslips False tax returns Chapter 14 False Applications Without the broker’s knowledge With the broker’s assistance Chapter 15 False Bank Statements Chapter 16 False Trading Records Chapter 17 False Tenants, Rent Rolls and False Occupancy Chapter 18 False Pre-Sales Chapter 19 False Contracts Rebate clauses Put and call options Chapter 20 False Comparables Chapter 21 False Reputations Chapter 22 False Cheque Directions Chapter 23 False Savings Chapter 24 False Contributions Chapter 25 False Urgency Chapter 26 False Title Particulars

PART 2

STRATEGY

Chapter 27 Impostor Fraud

Unencumbered properties Encumbered property Elderly property owners Naïve property owners Naïve solicitors Fraudulent solicitors How do impostors get access for the valuer? If the fraudster is close to the victim If the property is rented If the property is vacant If the property is unimproved land How valuers can detect imposter fraud How do impostors cover their tracks and get away? Detection through contact Detection through searches Detection through questioning Prevention through video-recording Detection through scrutiny of false identification Document Verification Service Chapter 28 Corporate Hijack Fraud Chapter 29 Over-Borrowing Fraud Chapter 30 Settlement Fraud Simultaneous settlements Forged discharges and withdrawals of caveat Tender of fraudulent bank cheques Fraudulent money down Fraudulent tender to the outgoing mortgagee Surplus proceeds diversion Chapter 31 Company Title Fraud Impersonating the company title executive Double mortgaging the entire block

Chapter 32 Unjustness Fraud Chapter 33 Serviceability Fraud Chapter 34 Exit Strategy Fraud Chapter 35 Valuation Fraud The responsibility of lenders for valuation fraud Fooling the lender Valuer independence Fabricated valuations Altered valuations False assumptions Deceiving the valuer False security False non-tenant income False zoning False usage False advertising Valuer corruption Chapter 36 Smoke and Mirrors Fraud Chapter 37 Developer Extrication Fraud Index

[page 1]

Part 1 Tactics

[page 3]

Chapter 1 False Websites 1.1 Mortgage frauds often involve false websites that pretend to be an employer, solicitor, accountant, valuer or borrower. These are set up to give credibility to fictitious elements in the fraudster’s tale.

The domain 1.2 In order to perform due diligence on a domain, is a tool that looks up a domain and gives a result that looks like this:

If the domain has recently been registered or altered, it is a red flag. If the registrant does not mesh with the ostensible owner of the website, this is also a red flag.

The content 1.3

If the website is very basic the chances are it is false. Broken links,

empty sections, contact details that consist of only a mobile phone number, or anything else that looks glaringly rudimentary, should raise a red flag. [page 4] A website that appears very sophisticated may also be fraudulent. This technique involves website cloning. The fraudster finds a genuine website and automatically copies the structure and content of the site to create a false site. An edit tool is used to search and replaces names. Website cloning can be detected by copying random text strings from the website being examined and pasting them into Google. For example, the text string: … about building upon our pioneering heritage to meet the constantly changing needs of our users. We are developing innovative tools, services and content that will better prepare our users for the challenges of tomorrow. Thanks to your guidance and constant feedback, we are creating better products that reduce risk and deliver time savings, and contribute to greater productivity and profitability was taken from the website . This string is unique on the Internet and returned only two results on Google: the LexisNexis website, and a charity website which re-publishes the material on LexisNexis.

Digital footprint 1.4 Established businesses have reasonable-sized digital footprints. This includes local press articles, industry press articles, companies that have them as clients, LinkedIn articles and social media. Internet searches should return a good number of results for employers and also for the borrower if they are a white collar worker. When checking employment details ask the borrower for the names of

two senior officers at their place of employment. The names given should all be searched for on the Internet immediately after the question is asked. This not only defeats false employment details but will also catch impostor fraud using a genuine employer of the identity theft victim because an impostor will be unlikely to know the names of two employees at the victim’s place of work.

[page 5]

Chapter 2 False Emails 2.1 Mortgage frauds will often involve false email addresses. No identification is required to create an email address with Gmail, iCloud, Outlook, Yahoo or a host of other free email providers. While the use of a free email address is the norm for borrowers, the use of such an address by a solicitor, accountant, valuer or employer is a serious red flag. When a borrower provides a free email address, they should be asked for their work email as a security requirement. If they hesitate, assure them that you only intend to send one email, seeking one reply, containing only the word ‘test’ in the subject. If they still hesitate, you should be extremely suspicious. Employers may have rules about the use of their email for personal purposes, but it is unlikely that they would object to the above. Any email address provided for a professional, such as a solicitor, accountant, valuer or an employer, should match the domain name of their website. If not, it is a red flag. However, the reverse should not provide comfort. It is possible to register and host a domain, build and upload a website, and host an unlimited number of email addresses, for virtually no cost and without going through any identification process. A basic precaution is to telephone the person with whom you are supposedly communicating via email. If you do not have their telephone number, find it from independent sources. If this cannot be done, then ask the person on the other end of the email for their telephone number and then perform due diligence the other way. For example, can the number be found in the White or Yellow Pages; who are they that they cannot be independently located through Internet or other enquiries?

[page 7]

Chapter 3 False Social Media 3.1 False social media involves the fraudster creating false profiles on sites such as Facebook, Google+, LinkedIn, Tumblr or Twitter. The purpose of these profiles is to give the appearance of a real individual’s digital footprint. False social media sites are often detectable by scrutiny of the photographs that are posted purporting to be the false identity. A big problem for the fraudster is posting their photograph where it can assist the police in prosecuting them for identity theft. On the flipside, not posting an image runs the risk of presenting an unconvincing portrayal to the person performing due diligence. Fraudsters get around this problem by posting a photograph that will be of limited use to the police; for example, the face is partially obscured by a hat and sunglasses. 3.2 To detect a false image try using Google Reverse Image Search . This will often bring up an image that has simply been harvested from another webpage. 3.3 When reviewing a LinkedIn profile, study the professional history for plausibility, internal contradictions and contradictions with the loan application form. Try telephoning former employers and asking for the person. There should be some recognition by former employers if the person’s LinkedIn profile claims they left the job recently. You should also check to see how many LinkedIn connections the person has and whether these connections are consistent with their professional history. You can only access connections if the person whose profile you are examining agrees. If you are a broker, you should insist. Otherwise, check the ‘People also viewed’ section. If the profile is a recent creation this section will be empty. If it is genuine, then there will be a number of related industry contacts. Try asking if the borrower knows any of them, then ask

for details. Follow several threads until you are satisfied you are being told the truth. False profiles will only withstand casual scrutiny. If you dig deep, you will always uncover the fraud.

[page 9]

Chapter 4 False Telephone Numbers 4.1 Fraudsters typically use pay-as-you-go mobile phones purchased using false identification. More sophisticated frauds will involve the use of a false landline or mobile phone with a contract in the name of the false identity. This allows the fraudsters to produce telephone bills that bolster their false identity. A borrower who comes to your office with multiple mobile phones is always suspect. There is virtually no legitimate reason for having multiple mobile phones. People who keep their work and personal phone numbers separate usually have a dual SIM card handset. 4.2 False landlines are typically set up in offices, apartments or warehouses which the fraudster has temporary access to, and then incoming calls are electronically diverted to a mobile number or callback service. This can be done with a handset or exchange-based diversion. Fraudsters usually answer the phone with a cautious-sounding ‘hello’ without identifying themselves. They will also be slow to recognise you. This is because they are thinking about which fraud and which identity the phone call belongs to. They may also have a person in the background who knows them by a different name. After a slow start, and stepping out of the room, they will become more and more confident and friendly, until finally at the end of the call they will have migrated the whole way back to a hearty, friendly and congenial personality. One consistent factor in the use of a false landline is that the fraudster will not wait around to answer it. Instead, the line will be diverted to a mobile phone. You should listen carefully for sounds indicating background noises which suggest it is a mobile phone. 4.3 Callback services are employed by fraudsters using false identities. Phone calls are answered extremely professionally and without hesitation. A common theme with commercial answering services is that they will

forward the call to a mobile number and/or take a message. If this happens on one or two occasions you can ask outright, ‘Is this a commercial telephone answering service?’, and they will usually answer in the affirmative if it is.

[page 11]

Chapter 5 False Documents 5.1 There are multiple websites operating on the Internet which, under the guise of providing novelty documents, will provide false documents. These include doctored bills and false tax forms. They use high-quality paper and printers to produce convincing pass-offs of the real thing. These services claim to operate within the law because the documents are produced as ‘novelty items’. Other sites use shifting IP addresses and Bitcoin payments for anonymity. These are more blatant and offer to assist fraud by providing all the documents required in order to dupe lenders or government agencies that issue identities. 5.2 Less sophisticated fraudsters do their own document falsification using graphics software to alter existing documents. The hardest to spot are documents that have been subtly altered rather than those that have been completely fabricated. Other than physically examining such documents for spelling mistakes (words and names), mismatching fonts, misaligned figures and dates in the wrong order, detection will usually depend upon the commonsense appraisal of the document itself in context. In this regard, techniques for scrutinising specific documents are detailed below. 5.3 PDF editing software, and the increasing habit of original documents being created and distributed in this format, means that the finished product of fraud can be extremely polished, based on the original and almost impossible to detect — almost. All documents provided in PDF format should have their meta data checked. The following screenshots compare a bank statement’s meta data before and after being altered. One telltale sign is the difference between the

created and modified times. These should be identical because institutions tend to assemble documents ‘on the fly’. The other giveaway is the PDF Producer. The off-the-shelf consumer software indicates the document was tampered with. [page 12] Original downloaded from bank

Altered version

Nevertheless, lenders should be aware that on the Internet there are several software vendors who sell software that allows meta data in PDFs to be edited, including dates and times.

[page 13]

Chapter 6 False Certificates of Title 6.1 A certificate of title is supposed to be a token which prevents fraud because the impostor cannot produce it when conducting a transaction. Not all states have certificates of title. In those states where they are used, fraudsters have discovered multiple ways to circumvent this safeguard.

Replacement certificates of title 6.2 A lot of people who have paid off their mortgage genuinely have no idea where their certificate of title is. This is because it might have been entrusted to a solicitor who has since died or whose identity has long been forgotten. Alternatively, a solicitor, accountant or bank may have lost it. It may have been put in a safe or hidden among other papers and been inadvertently thrown out. There are many reasons why the land titles offices frequently receive applications for replacement certificates to be issued. The land titles offices historically had less robust procedures to prevent replacement certificates being issued to fraudsters. Since a spate of frauds in the 2000s these procedures have now improved. 6.3 New South Wales and Western Australia provide an indication on the face of the register (search results) that the current certificate of title is a replacement for one reported lost or stolen. These look like this: NSW

THIS EDITION ISSUED PURSUANT TO S111 REAL PROPERTY ACT, 1900

WA

THIS EDITION WAS ISSUED PURSUANT TO SECTION 75 OF THE TLA

There ought to be a bold notation that reads: THIS EDITION OF THE CERTIFICATE OF TITLE IS A REPLACEMENT FOR ONE REPORTED LOST OR STOLEN. TAKE EXTRA CARE TO CHECK THE EDITION NUMBER. The Northern Territory and South Australia issue the replacement certificate of title with a new volume and folio reference, thereby providing the strongest protection against the misuse of a stolen certificate of title. 6.4 The following case study is based on Chandra v Perpetual Trustee Victoria Ltd [2007] NSWSC 694. [page 14]

Case Study 6.1: The importance of verification Type of fraud: Imposter Fraud A solicitor in sole practice in Sydney was sued for unwittingly assisting a fraudster to obtain a replacement certificate of title. The solicitor was approached by the fraudster, who claimed to be authorised by the owners of the property to act on their behalf. The solicitor did not verify the authenticity of this claim. The fraudster instructed the solicitor to apply for a new duplicate certificate of title (the original supposedly having been lost). Until then the solicitor knew nothing of the owners of the property or of the fraudster. The solicitor efficiently prepared an Application for New Certificate of Title and a form of supporting statutory declaration to be made by the owners; he gave these documents to the fraudster, and when the fraudster later returned them, apparently completed by the owners and witnessed by a Justice of the Peace, the solicitor lodged the Application for New Certificate of Title at the Land Titles Office with the statutory declaration. The solicitor personally attended the Land Titles Office to obtain urgent consideration of the Application for New Certificate of Title, and collected the new certificate of title, later handing it to the fraudster. The solicitor prepared a Memorandum of Fees directed to the owner, but did not send it out to the owner, instead giving it to the fraudster who paid it. The solicitor had no other part in the transactions which led to the delivery of a forged mortgage, the new certificate of title and many other false documents to Perpetual Trustees Victoria and ultimately to the two advances that were made. Associate Justice Bryson, in finding the solicitor negligent commented, at [103]: It should have been obvious to a reasonable person practising as a solicitor in

2005 that there were risks of identity fraud associated with applications for new Certificates of Title. The risk is inherently obvious: and it had been realised in recent experience and publications. For a prominent example, an Article by Matthew Bransgrove entitled ‘Mortgage Law: What can solicitors do to reduce mortgage fraud?’ in the Law Society Journal, November 2004, dealt with the prevalence of identity theft with vivid examples and many practical suggestions for cautionary conduct.

6.5 The following case study is based on Prothonotary of the Supreme Court of NSW v Alcorn [2007] NSWCA 288. Case Study 6.2: Corruption Type of fraud: Imposter Fraud This case concerned the removal from the NSW Roll of Solicitors of Brian Dean Alcorn, for dishonestly and corruptly being involved in a fraudulent mortgage scheme run by a fraudulent Queensland finance broker, Neville Stumer, and his company Direct Money Corporation Pty Ltd. [page 15] The scheme involved obtaining replacement certificates of title by lodging false statutory declarations claiming the originals had been destroyed in a cyclone. The frauds involved 35 properties owned by two families. In total, $12,170,000 was fraudulently borrowed. Mr Alcorn was sentenced to two years’ jail by the NSW Court of Criminal Appeal but was released on parole prior to completing the full sentence.

Stolen certificates of title 6.6 Busy law firms will often have dozens of certificates of title passing through their mail rooms daily. This, coupled with the fact that land titles offices are both slow and inconsistent in returning certificates, means hijacked certificates are often not detected for weeks. Additionally, the very people with access to the certificates of title (paralegals, solicitors, conveyancers, law clerks) are also the people with the conveyancing knowledge necessary to orchestrate a fraud. Even once the loss of the certificate of title has been detected and a

replacement obtained, there is still the danger that the stolen certificate of title will be used to dupe a lender. This is where the settlement clerk, acting on behalf of the solicitor, must be very careful to ensure that the date and version of the certificate that is handed over at settlement match the date and version on the pre-settlement search. It is also incumbent on the solicitor in Western Australia and New South Wales to alert the settlement clerk to the fact that the current certificate is a replacement. To not do so is negligent. 6.7 Certificates of title are often stolen by friends and family. For example, a young boy might have known since he was 10 years old that his grandfather kept his certificate of title in an ammunition case in his workshop. It was not until 20 years later when he became a heroin addict that he decided to steal it and mortgage the property. Those close to the real owner (eg, relatives, nurses, etc) often have access not only to the certificate of title but also to identification, rates notices and other documents which assist in the commission of the fraud. In Printy v Provident Capital [2007] NSWSC 287, the owner, who was an American, allowed friends to live in his house rent free for many years on the condition that they maintained the property. He left the certificate of title ‘somewhere in the bedroom’. Returning many years later, he discovered he no longer owned the property. 6.8 Sometimes a certificate of title is reported as stolen but a replacement is not applied for. This is particularly insidious for lenders because they have no way of being alerted to the theft, yet the land titles office knows about it. No notation is placed on the title and instead an internal device known as a ‘registration stopper’ protects the Torrens Assurance Fund but not the lenders. This was explained by an officer of New South Wales Land and [page 16]

Property Information (LPI) when giving evidence in Challenger Managed Investments Ltd v Direct Money Corp Pty Ltd (2003) 59 NSWLR 452 at [25]: A so called ‘Registration Stopper’ is an electronic flag that may be entered into the titling data base operated by the Registrar-General and known as the Integrated Titling System (ITS) so as to ensure that dealings with that land are referred to the person directing the notification for further investigation, and possibly for requisition, prior to registration. This notification is used as an administrative tool where the Registrar-General has concerns about possible transactions but does not have the evidence to warrant the placement of a Registrar-General’s caveat under s 12(1)(e) of the Real Property Act 1900. A Registrar-General’s caveat would prohibit the registration of any dealings with the land whereas the ‘registration stopper’ requires that dealings be further investigated prior to being registered. A ‘registration stopper’ does not appear on a search of the Register folio. It is submitted that if a registration stopper is to be lodged, then it ought to appear on the public register. Otherwise, lenders are misled, by a clear search, into believing their mortgage will be registered (and they will acquire indefeasibility). 6.9 In 2011 Western Australia introduced an excellent facility for preventing fraud which probably ought to be available in all jurisdictions and made mandatory when a certificate of title is reported as stolen. It is described in Landgate’s Customer Information Bulletin No. 2081 as follows: Western Australia has experienced two instances within the last 12 months where real property appears to have been sold without the owner’s consent. In both cases, the owner (registered proprietor) was residing outside of Western Australia and it appears that they were victims of identity theft. In order to reduce the risk to WA landowners from being the

subject of improper dealings on their property, a new caveat service is being offered by Landgate. A Caveat (Improper Dealings) can now be lodged with Landgate. The caveat, once lodged, will stop the registration of any instruments or documents that would ordinarily need to be signed by the owner, for example: transfers; mortgages; and leases … In order to remove the Caveat, all the owners must present themselves in person at the same time at Landgate’s Midland office and satisfy, as a minimum, the requirements of a 100 point identity check using original documents, not copies. Only the owners of the property can remove the Caveat in person. For example, if the property was owned by three persons as tenants in common, and one of the owners did not wish the caveat to be lodged, then the other owners would not be able to lodge a Caveat (Improper Dealings). In the same way, once a Caveat (Improper Dealings) [page 17] is in place, if one of the (say) three owners did not want it to be withdrawn, then the other two owners could not successfully lodge a Withdrawal of Caveat form.

Improperly surrendered certificates of title 6.10 If the property is encumbered, the certificate of title will be held by the first mortgagee. The fraudster, therefore, has to trick the lender into parting with the certificate. There are several ways fraudsters approach this. One way is to send a letter to the existing mortgagee asking for payout

figures and subsequently to book in discharge. This letter is sent via a false or duped solicitor. Another way is to have the incoming lender seek the certificate of title and payout figure. The existing mortgagee sends an authority to release the certificate of title which is duly faxed back with a forged signature. At settlement some of the monies advanced under the defrauded lender’s mortgage are used to discharge the existing mortgage. The surplus proceeds are made off with by the fraudster. 6.11 In the famous Gosper’s case2 the husband instructed solicitors on behalf of his wife (without her knowledge) to seek an increase in an existing mortgage from the current lender. This bypassed the need to obtain the certificate of title altogether. The lender in that case was unable to recover either the additional money advanced from the wife or the property because, as custodian of the certificate of title, the lender was found to have a duty to ensure it was not produced for a fraudster to misuse. 6.12 To avoid improperly surrendering a certificate of title, solicitors and lenders should take steps to independently verify discharge requests. They should not rely on the fact that the borrower is represented by a solicitor or that the request comes from a reputable lender. Independent verification means contacting the borrower directly using contact details they have on file. Solicitors, who purport to act for borrowers, must take extra care to verify where their instructions are coming from. This means having a face-to-face meeting with the client and properly identifying them.

Forged certificates of title 6.13 In the mid-2000s there was a spate of counterfeit certificates of title used to fraudulently mortgage properties in New South Wales. Both the real owners and the imposters were foreigners. The fakes were very good and obviously a lot of effort had gone into them. The frauds were

attributed to organised crime and seem to have stopped now, no doubt in part because the land titles office increased the security features on the certificates of title. [page 18] 6.14 New South Wales Land and Property Information issued Circular 2003/053 of which the following is an extract: Counterfeit Certificates of Title The Registrar General wishes to advise customers of LPI of further incidences of fraud involving the use of counterfeit Certificates of Title. The scheme was first uncovered in late 2002. A total of six counterfeit Certificates of Title have been detected to date by LPI. Generally, the fraud works in the following way. The fraudsters create a counterfeit Certificate of Title, assemble fraudulent personal identification documents and present these to a financial institution to secure a mortgage over the land. In all but one case, loans have been arranged through mortgage brokers. The Law Society of NSW has advised that in each instance, the fraudsters have presented themselves to a solicitor with whom they have had no previous association and requested the solicitor to act on their behalf in relation to an approved mortgage loan. All instances to date have involved unencumbered land, and the fraudsters have instructed solicitors to pay the proceeds of the mortgage to persons other than the registered proprietor … 1

CIB 208, New Caveats for Landowners, 30 August 2011, .

2

Mercantile Mutual Life Assurance v Gosper (1991) 25 NSWLR 32.

3

See .

[page 19]

Chapter 7 False Bank Cheques Washed cheques 7.1 A washed cheque involves the fraudster using chemicals such as acetone, benzene, carbon tetrachloride, chloromice (a mild form of bleach), correction fluids and other solvents to remove the amount and/or payee on a genuine bank cheque in order to then overprint the fraudulent information. This means that anyone examining the cheque for security features will be fooled by the cheque. Some banks put reagents in their cheques which react when these chemicals are applied and create the word ‘VOID’. Sometimes the alterations are complete; for example, when the payee and amount have been changed. Alternatively, only the amount may have been changed. Here, the fraudster purchases the cheque made payable to the victim and simply changes the amount.

Stolen blanks 7.2 Often, when a bank employee has stolen a wad of cheques from a busy branch, all the variable information is printed on the cheque by the fraudster. The genuine security features of the blank cheque make scrutiny useless in detecting the fraud.

Fraudulently obtained or stolen cheques 7.3 One weakness of bank cheques is that when a mortgage is discharged the cheque used is made payable to the financial institution. This opens up the possibility that the cheque has been fraudulently obtained for another purpose. For example, a cheque stolen from a

solicitor’s mailbox may have been destined to pay off a quite different mortgage. In one case1 a fraudulent broker arranged investment loans for the victim and then pretended to be investing the proceeds with Perpetual Trustees in an offset mortgage account. The cheques provided by the victim were made payable to ‘Perpetual Trustees’ and deposited into the fraudster’s account with Perpetual, from where they were then dissipated by the fraudster. [page 20]

Counterfeit cheques 7.4 Crime syndicates counterfeit Australian bank cheques offshore, including sophisticated metalised printing to mimic the Holostripe in genuine cheques. The blank cheques are then imported to Australia where the variable information is applied using a laser printer. There have been multiple reports of these cheques being used to purchase cars privately. One giveaway is that the fraudster asks the victim which bank they use. This is done in order to ensure the counterfeit cheques are drawn on a different bank (allowing a longer time to elapse before detection so that the trail goes cold).

Detection 7.5 Although it is important for settlement clerks to scrutinise bank cheques at settlement, the reality is that a washed, stolen, cancelled or even counterfeit cheque can be impractical to detect in a busy settlement room. Accordingly, the solution is to perform due diligence on the origin of all funds before settlement and to ensure the settlement clerk is instructed as to which party to accept cheques from at settlement. This is discussed in further detail in the chapter ‘Settlement Fraud’; see [30.1]–[30.11].

1

Heperu Pty Ltd v Belle [2009] NSWCA 252, 26 August 2009.

[page 21]

Chapter 8 False Identities 8.1

False identities are used for:

impostor fraud; corporate hijack; settlement fraud; priority fraud; unjustness fraud; serviceability fraud; exit strategy fraud; valuation fraud; smoke and mirrors fraud; and extrication fraud. Accordingly, false identities are the most important fraud for a mortgage professional to be on their guard against. Even frauds of the most cunning conception will quickly fall apart if the false identity component is detected.

Identity theft 8.2 Identity theft previously involved the fraudster patiently accumulating the genuine identification documents of the real person. This involved stealing lesser documents, such as rates notices, bills and concession cards, in order to obtain birth certificates, passports and driver licences. These days, identity theft increasingly involves the use of forgeries commissioned over the Internet using Bitcoin for payment. The targets of identity theft are often persons who are overseas for a

lengthy holiday or work placement, or otherwise indisposed, such as elderly people in nursing homes, prison inmates and people undergoing treatment for cancer. These are people who can be expected not to be in a position to attend to their mail. Methods of detecting identity theft are discussed in the chapter ‘Imposter Fraud’; see [27.1]–[27.34]. [page 22]

Identity substitution 8.3 Identity substitution occurs when a family member or a friend has access to the identity documents of the victim and commissions someone else to impersonate that person. Thus, a man might impersonate his brother or have his sister impersonate his wife. Children have been known to recruit homeless people to impersonate their parents. The possibility of identity substitution means the mortgage professional conducting the face-to-face identification must be on their guard to scrutinise the identity of all parties to a transaction and not relax their vigilance simply because one or more of the identities seems genuine. Identity substitution is hard to detect because the fraudsters are typically the close relatives, friends or carers of the victim. They have the ability to intercept mail and answer questions only the victim would know. They can even involve the victim as an unwitting abettor of the fraud. 8.4 Methods of detecting identity theft are dealt with in the chapter ‘Imposter Fraud’ commencing at [27.1]. See also the chapters ‘False People (Patsies)’ commencing at [10.1], and ‘Unjustness Fraud’ commencing at [32.1].

Identity tweaking 8.5

Identity tweaking involves making a small change to a genuine

identity; for example, changing a date of birth to hide a poor credit history. Also common is changing the spelling of a name or using an anglicised or shortened version of a foreign name.

Identity fabrication 8.6 Identity fabrication involves the invention of a person who does not exist. The fictitious identity can be adopted by the fraudster, but equally common is for the involvement of the fictitious person to be limited to paperwork. Thus, a fictitious accountant might issue a letter, or a tenant might be fictitious, or several of the off-the-plan purchasers of a development might be fictitious. The way to detect fictitious identities is to attempt to contact them. If this is successful then perform due diligence on their website [1.1], their email address [2.1], their telephone number [4.1], and contact their solicitor [9.7]. Most fictitious identities are incapable of withstanding even the most superficial enquiry. It is generally only when representations, including representations concerning fictitious individuals, are taken at face value that frauds succeed.

[page 23]

Chapter 9 False Professionals 9.1 Theft of a professional identity involves the fraudster creating false letters or reports in support of the loan application which purport to be the work of an actual accountant, solicitor, valuer, financial advisor, quantity surveyor or real estate agent. The false document will often have the genuine contact details of the professional whose identity has been stolen. This is a brazen, but calculated, trick. Fraudsters know that mortgage professionals will often check the contact details on the document against those to be found on the professional’s website, professional register or the Yellow Pages, but not always contact the professional directly. Accordingly, it is important to make verbal contact with the professional if reliance is to be placed on a document. 9.2 Another common variant of theft of a professional identity is to take a genuine document, issued by a genuine professional, and edit it. Thus, a valuation may be 100% genuine except that the figures or apartment numbers have been changed. A letter from an accountant may be genuine, but the trading figures may be altered. The way to detect this is to verbally contact the issuer of the document and go through some or all of the figures with them. You can also ask that a copy of the document be emailed to you by the professional for comparison against the version you have been given, or email the version you have to the professional for verification. The creation of the false document in the name of an accountant, real estate agent or other professional who has recently left the organisation is another common ploy. If you are told the person has left then you should ask who is taking over that person’s files. Quote the reference number to the successor, ask them to pull up the document on the system and then go

through it with them. Approach the professional at their new place of work and ask them if they remember signing the document. 9.3 Some frauds involve a fictitious accountant who supposedly works at a genuine accounting firm. These sorts of fraud are detected by contacting the genuine firm and discovering there is no one there by that name. The sophisticated fraudster will create a fictitious firm with a fictitious cloned website and a false landline and/or professional answering service. The way to detect this sort of fraud is to check the firm’s digital footprint and/or perform a company search and check for membership on professional registers ([9.5]–[9.12]). [page 24] 9.4 Fraudsters have been known to target elderly, semi-retired professionals who still appear on their professional register but who have no website. The fraudster simply creates a website in that professional’s name. This sort of fraud is detected by performing checks to see if the website has been cloned, and by telephoning the professional using the number from the Yellow Pages. Often the content will give away the fraud. For example, a false accountant’s letter was recently detected because the mortgage professional noticed it contained figures from the borrower’s tax return. She found this to be anomalous because on a low doc loan an accountant’s letter is usually sought because there are no tax returns.

Public professionals registers 9.5 If the professional works for a large company and you contact them through an independently obtained telephone number, there is probably no need to check credentials. However, if the professional is a sole practitioner or a small company, or a big company you have never heard

of, then you should check their credentials. The following are the public registers where you can get this information.

Accountants 9.6 There are three accounting bodies, and every accountant needs to be a member of one of these bodies in order to practise in Australia. Each body has a register of members that can be searched via the Internet. CPA Australia

Chartered Accountants Australia

Institute of Public Accountants

Solicitors 9.7

Queensland

New South Wales

Australian Capital Territory

[page 25] Victoria

Tasmania

South Australia

Western Australia

Northern Territory

Real estate agents 9.8

Queensland

New South Wales

Australian Capital Territory

Victoria

Tasmania Telephone (03) 6223 4769 South Australia

Western Australia

Northern Territory Telephone (08) 8999 5511 [page 26]

Valuers 9.9

Queensland

New South Wales Telephone 13 32 20 Australian Capital Territory, Victoria, Tasmania, South Australia and Northern Territory These states and territories do not have a public registry for valuers, nor are valuers licensed. In order to perform due diligence you should search the Australian Property Institute national register: . Western Australia

Quantity surveyors 9.10

Private certifiers

9.11

Queensland

New South Wales

Australian Capital Territory

Victoria