Lender vs lawyer: SRA regulated bogus firm

Lender vs lawyer: SRA regulated bogus firm


A law firm is considering taking action against the Solicitors Regulation Authority (SRA) for failures which it claims led to it being tricked in a mortgage fraud by a bogus practice which was SRA registered.

Davisons Solicitors, which is facing a High Court order to repay £184,500 to a high street mortgage lender, argues that had the authority acted promptly in reacting to a warning that this was not a legitimate practice, the fraud would not have happened.

Davisons acted for the buyer and Nationwide in the purchase of a £250,000 property in Sutton Coldfield, backed by a £184,500 mortgage, but the money was lost once it was released and it emerged that the ‘solicitors’, Rothschild Small Heath (RSH) (who purported to act for the owner) had in fact been operating the bogus office of a legitimate law firm, Rothschild.

Catherine Newman QC, sitting as a deputy High Court judge, found that in October 2008, someone pretending to be the owner of legitimate Birmingham firm Rothschild notified the SRA of an intention to open a branch in Small Heath.

According to Legal Futures, she said the SRA did not notice that the source e-mail address was not the same as that previously used by the practice. The regulatory body subsequently included the supposed new office of Rothschild Small Heath (RSH) on the SRA records and Law Society’s ‘Find a Solicitor’ website from the end of October 2008.

The legitimate Rothschild solicitor became aware of the fraudulent office in December 2008 and notified the SRA. According to

Legal Futures

, the judge said: “I was told that, regrettably, the SRA failed to do anything about removing the fake branch office from the records and website until April 2009.”

In the period between the SRA being notified of the bogus office and the details being removed from the records and website Davisons - who had checked ‘Find a Solicitor’ for the names of both RSH and the solicitor in accordance with the Law Society’s mortgage fraud green card and the Lender Handbook - fell victim to the mortgage fraud. 

Despite the court finding that Davisons had acted honestly throughout – and had even reported the transaction to and received the go-ahead to proceed from the Serious Organised Crime Agency – the ruling decreed that it was ultimately at fault.

The firm was found to be in breach of the contract of retainer with Nationwide. Further, it was found to have acted in breach of trust by failing to obtain a fully enforceable legal charge and parting with the advance without an express undertaking from RSH to discharge the existing mortgage on completion.

It was upheld because, according to the CML handbook, the lender’s solicitor has a mandatory responsibility to obtain a legal charge upon completion, according to a


by Eversheds LLP.

Gary Davison, managing director of Davisons, said he was “astounded and appalled” by the failure of the SRA to respond quickly to the report that RSH was bogus. Had it done so, Davisons’ checks would have stopped the transaction in its tracks. Not only had this resulted in a claim against the firm, he said, but it hit its indemnity insurance too.

Davisons had to disclose the pending action when it applied to renew its insurance last year, and as a result its premium more than doubled. Mr Davison is reportedly seeking advice on whether he can take action to recoup his losses from the SRA.

The SRA has just issued guidance to solicitors to be vigilant about identity theft and bogus law firms.

An SRA spokesman said: “It is cases such as this, and persistent further frauds or attempted frauds, which prompted the SRA to issue its warning to help the profession reduce its vulnerability to such behaviour. This case occurred in 2008-9, since when the SRA has carried out a substantial tightening of authorisation processes and trained staff in the risks arising from bogus firms or branch offices.

“The case also confirms the risk of firms being held liable by the courts even though they may be characterised as victims of the fraud, as the SRA has warned. In terms of the judgment, the SRA was not a party to the proceedings and it would be inappropriate to comment on the facts.”

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