Property Crash Stories: Disputes, Distress and Disasters

Quote :

Cab investigating cases of 'builder bailout fraud'

THE CRIMINAL Assets Bureau (Cab) is investigating a number of cases where builders have paid fraudsters to purchase properties from them at inflated prices in a move to secure sales following the collapse in the property market.

Det Chief Supt John O’Mahony, the Cab’s chief bureau officer, told the Oireachtas Committee on Finance and the Public Service that it was investigating cases of “builder bailout fraud”.

...

Since its creation in 1996, the Cab has taken 56 prosecution cases in the High Court; 20 cases involved properties being used to borrow mortgages using false documents.

http://www.irishtimes.com/newspaper/finance/2009/0312/1224242739156.html

I noticed 3 pages of reports on court cases on property disputes in a copy of the Irish Times last week.

I'm going to take the liberty of making a new thread from this, as it is quite far from evercloserunion's OP about the predicament faced by his generation.

Yes, that fraud they are talking about has always been quite widespread in America. Basically what happens is a developer teams up with a criminal fraudster. The fraudster creates an artificial identity and agrees to buy property from the developer. The fraudster, using falsified records, manages to get mortgage approval to buy the property. The fraudster, under the assumed name then purchases the property from the developer, who obviously gets payment in full from the mortgage lender. The developer then pays a percentage of this money to the fraudster as a fee for the service. The artifical person created by the fraudster never makes a payment on the mortgage, defaults and then when the mortgage lender look to chase after him they discover he doesn't exist.

Quite why anybody would try to get away with it I don't know, because it is inevitable that the bank discovers it has been conned when it turns out the person doesn't exist. It is also pretty likely that they find the same thing has occurred on numerous mortgages on property sold by the same developer. Thereafter all fingers point at the developer, you send the Gardaí in who find the evidence and you get a conviction.

Madness really but it just shows you how desperate the developers are. In a situation like this they are far more likely to get caught than the fraudster who is presumably bright enough not to give any of his real details to the developer anyway.

I've read of a couple of cases recently, not just the well known one, of people taking out multiple loans/mortgages on the security of one property.

Presumably people used the money to buy more property in the expectation the market would continue to rise.

The Law Society should withdraw from the solicitors' undertaking system as it is clearly not working.

There is a story on the Pin about somebody who bought a house where the sale was being handled by Michael Lynn. The money was never applied to discharge the existing mortgage and the innocent buyers lost their home. The banks lobbied for and helped design this system so that they would not have to employ their own solicitors. This has saved them millions upon millions in fees. When it goes wrong they go into court, describe themselves as innocent parties and take away somebody's house. Shame on them. Shame on Michael Lynn. The Law Society must withdraw from this system.

http://www.irishtimes.com/newspaper/ireland/2009/0310/1224242572243.html

cactus flower wrote:

I've read of a couple of cases recently, not just the well known one, of people taking out multiple loans/mortgages on the security of one property.

Presumably people used the money to buy more property in the expectation the market would continue to rise.

Yes, that certainly happened alot, though I don't think I would use the term widespread. Michael Lynn and Thomas Byrne were the obvious examples but there were more out there. It was very easy to do owing to the bank's not checking out title themselves on foot of an undertaking from a solicitor. Basically, if there is a mortgage over land it is registered against the land in either the Registry of Deeds or the Land Registry (depending on what type of land it was). It is incumbent upon whoever holds the charge, ie the bank, to make sure that this is done. However, in recent times with so many mortgages being granted and with pressure on the banks to approve quickly they accepted an undertaking (which means a promise) from a solicitor that the solicitor would make sure that the mortgage was registered against the title. Of course in these instances the mortgage was never registered against title meaning people engaging in this activity could take out multiple mortgages over the one property.

I think we will find many more instances of the above as the people who engaged in such practices inevitably default on their obligations. It was certainly widespread that the banks accepted such undertakings, in fact it was the norm. But obviously the vast majority of solicitors acted honestly.

It is a great argument for further implementing the process of land registration in Ireland which has been ongoing since the early 20th century but hasn't got very far. Very few counties have registered land and those that do tend to be rural in nature. If we moved the whole system to registered land, which Britain has almost managed at this stage, it would be far easier to discover what encumbrances there are over a property because you can look it all up online in an instant. Most of our urban property is registered in the archaic Registry of Deeds where you have to send a searcher down to root through big old volumes to see who owns what property and what is registered against it.

It would be a fairly expensive process to try and move everything over to the Land Registry system but it would certainly be a useful exercise. Given that there are nearly 1,000 solicitors on the dole (probably over 1,000 at this stage) most of whom are presumably specialists in property the Government would not be making a mistake if they employed a hundred of them on a temporary basis under a project to compulsorily transfer all property to the Land Registry system. Would take a few years.

The technology is in place to do it.

cactus flower wrote:

The technology is in place to do it.

Sort of. Certainly the technology is in place at the Land Registry in that the Property Registration Authority (as it is now called - "The Land Registry" until last year) does exist and for those properties covered by it the system is in place. Many of the people posting here who are from outside Dublin and live in newer dwellings will live in land which is covered by the simpler system of the Property Registration Authority, you will have heard terms such as 'Folio' when you built or purchased your property. All the information at the Property Registration Authority is easily accessible and this includes information on the ownership of the land as well as any charges against the land, whether that is a mortgage from a bank or a judgement against the land owing to the owner having outstanding fines imposed by the courts. Any member of the public can easily access this information through specific requests but more importantly banks and solicitors have subscriptions to computerised software and they can get all the information at the click of a mouse.

However, for a huge amount of the country, the system still used is the Registry of Deeds, a system which dates back to the 1700s. Under this system everything is on paper, though there are now some computerised directories relating to it. Under this system if you want to know something about land, you have to physically go down to the Registry of Deeds, which is housed at the Kings Inn and physically search for documents to have a look at them. This does not make for good transparent and accountable processes in dealing with such lands. I was once dispatched to find some very tricky information at the Registry of Deeds and I spent three straight days in a vault with thousands upon thousands of documents searching for one vital piece of information.

Thus it is obvious that a move to the Property Registration Authority system would be far better for everyone, both lay persons purchasing land (in that it should make conveyancing cheaper and more straightforward) and for the profession and the banks as it makes the system more transparent and accountable. Britain, which had a similar dual system, has managed to move virtually all their land into the more modern system. In Ireland we began the process in the 1970s with three counties - Carlow, Laois and Meath. Our methodology was that if any property is sold in these counties, it is compulsory to move the land over to the Land Registry during the conveyance. Until last year these were the only three counties where land must be transferred to the new system on conveyance. Last year we extended that to six more counties, Clare, Kilkenny, Louth, Sligo, Wexford and Wicklow. The PRA on its press releases will tell you that "80 percent" of the country is now covered by compulsory registration under the new system. Of course that is a false statistic, given that counties Dublin, Cork, Galway and Limerick, the counties with the greatest populations, don't have the system.

Beyond that I don't think the idea of transfer on sale is actually the best way to push this through, we should just get on with the transfer even without sale. It would be a good investment in the longrun and as I said given the number of unemployed solicitors with nothing to do it would be a pretty worthwhile goal to focus their efforts on.

It would be an onerous and relatively expensive process given that in some ways given that the land isn't registered one wouldn't know where to start. I would imagine that one would have to engage in a process whereby local authority records and census data was considered in conjunction with the information at the Registry of Deeds in order to formulate a plan to do it. However, the ongoing reform of our legal system is a worthwhile endeavour. A proper transparent system of land registration which applied across the board would save us in the longrun and thus it is worthy of development even in a recession in order to prepare us for what is to come. The same naturally applies to the consolidation of Company Law which must continue unabated. Currently Company Law in Ireland is governed by about 7 core acts, various statutory instruments as well as European Directives. The vast bulk of the fiduciary duties held by a director are not even on a statutory footing... which may tell us a bit about why the duties of directors have been clearly abused. Thus, the consolidation of Company Law is an equally important, albeit expensive, process in which to engage both to make Ireland an easier place to do business as well as protecting against future nonsense.

The issue is not with seeing the encubrances. There is no suggestion that mortgages were not registered or that the purchaser was unaware of them. The problem is that the purchaser's bank (if any) relied on the purchaser's solicitors undertaking to get good title and the purchaser's solicitor relied on the vendor's contractual obligation to pay off the loan out of the sale monies and on the vendor's solicitor's undertaking to look after it.

Everybody, but particularly the vendor's and purchaser's banks are saved time and effort. The Vendor's bank doesn't have to show up at the hand over of money and deeds to get the mortgage money. The Purchaser's bank also doesn't have to show up at the handover of money and deeds or to engage a solicitor to look after its interests. The two people at risk are the purchaser and his/her solicitor as they must trust the Vendor's bank to give correct redemption figures and they must trust the Vendor's solicitor to pay off the loan. These people gain enough through the increased efficiency to take the losses when they arrive. The banks, who do gain, have walked away from the system when it goes wrong (if may be the case that the purchaser had no bank in this case).

It is inevitable that solicitors for purchasers will now decide
(a) that the purchaser's solicitor will not give an undertaking to a puchaser's bank to procure that the vendor's mortgage is discharged, or
(b) the purchaser's solicitor will make his undertaking to the purchaser's bank conditional on the the vendor's solicitor complying with his undertaking, or
(c) that the bank employ their own solicitors to look after their interests,
AND
(c) the purchaser's solicitor will seek to exclude any liability to the purchaser arising as a result of the vendor's solicitor failing to fulfil his undertaking to discharge the mortgage, or
(d) the purchaser's solicitor will insist that the vendor procure that vendor's bank turns up at the closing to take the money and give receipt, or
(e) that the closing will take place at the Vendor's bank so that the amount owing can be confirmed and a receipt may be obtained.

These are all additional transaction costs that must be added or re-introduced to avoid risks which the banks and insurers are not willing to cover. This will make the system more inefficient. The reason for these changes are that the players with the biggest interest in efficiencies and with the strength to set ancillary losses off against savings, i.e., the state and the banks, are seeking to avoid these losses. In fairness to the State, it is going hell for leather to bring in a technological solution to eliminate the risks altogether. In the meantime the Law Society must withdraw from the present system as it is all pain and no gain for solicitors and the recommended and agreed practice may be in breach of solicitors' duties to clients. Just becasue something complies with Law Society practice recommendations doesn't mean that a Judge won't decide that it constitutes negligence!