Overcoming Fraud in Property Transactions

This publication refers to and expands on an interview Andrew Grima gave to the Law Society Journal. You can access the article by journalist Cat Woods - ‘Property pirates: how lawyers can protect their clients from title scams’ at LSJ Online (16 January 2025).

In the area of transactional property law, the urgency of matter settlements can sometimes lead to the oversight of potential fraud risks. 

Based on extensive experience, our team discuss below how easily fraudulent transactions can be overlooked. We explore the measures that have been implemented to reduce the occurrence of fraudulent property transactions, as well as the available remedies when things go wrong.

PEXA

The registration and ownership of property have become more protected through the introduction of electronic titles and the electronic system of registration through the PEXA platform – of course, combined with the strict guidelines that are in place on identification, registration, and ownership of property. One of the key motivating factors behind the introduction of these systems was to attempt to address concerns of fraud as well as to increase efficiencies.

Prior to the introduction and gradual adoption of PEXA, it was much easier for fraud to take place. For example, in land dealings, a party needed to produce the hard copy Certificate of Title. Fraudsters who were able to get their hands on the Certificate of Title (usually where the title was not held by a mortgagee), could easily forge a signature on a transfer or other dealing.

Now, registration of many dealings in NSW cannot take place unless it is done through the PEXA platform (though there are some exceptions). Before a person’s representative can register a dealing on their behalf or attend a settlement for them, their representative needs to officially certify that they are authorised to do so on behalf of their client and have carried out a verification of identity. 

Identity fraud

The introduction of verification of identity requirements was an attempt to make it more difficult to commit identity fraud. For example, the fraudulent party would need to have false forms of ID to begin with. However a big concern today is identity theft through electronic means such as through hacking and cyber fraud. 

In the event that organisations are hacked and sensitive identifying information is stolen, the information would still need to be translated into forms of recognised identification to then be verified by a lawyer. While this would not be easy, it cannot be ruled out. As a result, organisations are encouraged to invest in and continually update their IT security systems. Additionally, the continual training of staff to highlight the importance of remaining vigilant and aware of potential scams and instances of fraud in the workplace is critical. 

Legal action and remedy

While every case is different, in the event fraud is committed through an attempt by a party to sell a property that they do not own and an innocent buyer falls for the scam, there are remedies available. There would likely be both criminal liability combined with an action by the party aggrieved against the fraud-committing party. Unfortunately such actions are costly and it is always difficult to estimate the cost depending on the extent of forensic accounting required, expert witnesses, barristers as well as solicitor costs. 

The Torrens Assurance Fund in NSW allows individuals to claim compensation if a person has suffered loss due to several reasons, including cases of fraud. However, there are circumstances where compensation would not be paid for a loss and there are time limitations within which a claim must be lodged for compensation from the fund. The ability under this scheme for the Registrar General to settle claims in accordance with the relevant legislation is only in certain circumstances.

Other methods of Title protection

Title insurance products are available in the marketplace as a method of title protection. This is a separate type of insurance from the typical insurance taken out by a homeowner such as home contents, home building insurance, and lender mortgage insurance. Whether Title insurance is necessary is a matter for each homeowner to consider after carefully reviewing the coverage, inclusions and exclusions of the policy. These terms will differ between insurance companies. 

Homeowners should also weigh the costs of taking out such insurance against the benefits of protecting against the risks of property fraud. Additionally, they should consider other existing protections and safeguards, such as the Torrens Assurance Fund and the appropriate due diligence carried out prior to purchasing the property (including title searches, investigations into approvals of structures, and boundaries), which all provide important protection. 

Contracts include various safeguards to protect a client from future fraud. For instance, a purchaser may have rights to compensation for an error or misdescription in the contract as to title, in limited circumstances. In addition, contracts impose specific requirements which oblige the vendor to cause legal title to pass to the purchaser free of any charges or mortgages. Furthermore, specific prescribed documents relating to title must be included within the contract and the contract itself must be signed by the vendor.

As part of the conveyancing process, a purchaser will raise requisitions on title which essentially are inquiries as to the title of the property. These requisitions cover various matters such as whether there have been claims for adverse possession, protected tenancies, proceedings pending about the title, and any encumbrances over fixtures or chattels. It is common to see prospective purchasers asking these questions even prior to the exchange of contracts. If the answers are found to be incorrect, depending on the circumstances, there may be consequences for the party providing incorrect answers, such as damages. 

Another inexpensive strategy for a person to protect their property title is to lodge a caveat on their own property. By doing this, another party cannot register any interest or dealing without the owner’s knowledge and will be notified in the event of any lodgment of dealings affecting the title of that property. This may be a simple way to reduce the instance of fraudulent land dealings.

Next Steps

If you require advice on fraud protection during property transactions and how the methods above may apply to you, please get in touch with our property team.

Author: Andrew Grima and Angelina Gorgovski