Continuing his exclusive articles for Bridging & Commercial on fraud, Cheval CEO Alan Margolis explains what arouses lenders’ suspicions, as well as the measures taken by some bridging lenders – ranging from using Google Earth to “the sniff test” –to counteract fraud.
According to Mr Margolis, secured lenders are vulnerable in two key areas: defective valuations and fraud – although sometimes the fraud can be linked to the valuation.
Where the bridging lender is asked to use an existing valuation as the basis for a new valuation, Cheval, along with additional checks, tries to ensure that the valuer is local to the property.
Ensuring that the borrower is who they say they are and that they have the ability to deal with the property is the other big challenge.
As part of its KYC process, Cheval requires a certified copy of the borrower’s UK Passport and two original, recent utility bills. These are then used to verify the borrower’s ID electronically.
All the above information is then considered in the context of the application.
However, Mr Margolis attests that sometimes peculiarities leap out. He said: “One such case was a borrower living in a scruffier part of Manchester buying a property in Holland Park and – here’s another suspicion raiser – using solicitors in Leicester!”
A quick check at HMLR revealed that the borrower’s residence was owned by his partner and a Companies House check on his alleged employer revealed there was no way – according to the accounts at least – that he could be earning his stated salary.
In order to prevent fraud, lenders are advised to verify the ID provided; ensure the valuers are local to the security property (and if not, ask why not) and establish the connection between the borrower and their solicitor.
Finally, and perhaps most importantly of all, there’s the “sniff test” – general intuition and questioning whether the reason for the loan makes sense: Does the borrower, their stated income and occupation, their residence, the activity shown in their bank statements all tie up together? After all, if these questions can’t be answered and the lender doesn’t have a clear understanding of who they are lending to and why, it is probable that the loan application will be turned down.
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