The creation of a new offence of obtaining a money transfer by deception was proposed by the Law Commission yesterday in an effort to block a loophole that allows mortgage fraudsters to escape prosecution.
The proposals in the report "Offences of Dishonesty: Money Transfers" are a response to the House of Lords decision in the Preddy case earlier this year. That held that the alleged mortgage fraudsters had not breached the 1968 Theft Act because they had not gained "property belonging to another".
The effect of allowing the Preddy appeal is that is has become "very difficult to prosecute mortgage fraudsters or anybody who obtains money dishonestly by any means other than cash payment", says the Law Commission.
Mortgage fraud has not been a big problem in recent years because the flatness of the housing market meant that building societies and banks were not competing fiercely to lend money. However, it was previously an important issue for lenders, who frequently found themselves at the mercy of dishonest borrowers, often acting in concert with corrupt valuers and solicitors.
At its simplest, mortgage fraud involves an individual seeking a loan to buy a house and then using the money obtained for a completely different purpose. But many people developed far more sophisticated scams, some of which involved several transactions taking place on the same day.
A spokeswoman for the Council of Mortgage Lenders gave a cautious welcome to the proposals, which could take many months to become law. "It looks very helpful and very welcome in tackling these problems," she said. However, she added that she felt the law change should be retrospective.
The Law Commission said it had rejected this on the grounds that it would not be feasible.
A spokesman for the Halifax, Britain's largest mortgage lender, said he supported the plans for a change in principle, but his organisation had suggested a much simpler change - amending the Theft Act to cover credit as well as property.
In its report, the Law Commission also seeks to combat problems stemming from the Preddy ruling that a credit balance resulting from one individual using deception to obtain a transfer of funds from another person's account to his own probably does not come within the definition of stolen goods.
It therefore recommends that there should be a new offence of retaining credits from dishonest sources. A credit would be regarded as wrongful if it derived from such means as theft, blackmail, stolen goods or the new offence of obtaining a transfer by deception.
Now that the housing market is recovering in most parts of the country, there is a danger that, without a change in legislation, mortgage fraud could rise again.Reuse content