Professional indemnity claims will rise in falling property market warns Mace & Jones

Published: 3rd July 2008

A leading law firm is warning that the stalling in the property market is leading to increased risk of professional indemnity claims.

Mace & Jones dispute resolution partner Craig Blakemore is a specialist in complex professional negligence claims involving property transactions. He warned that a surge of claims related to property transactions, including property fraud, is now beginning to materialise.

"The economic downturn has brought falling property prices and defaulting borrowers, causing lenders to more closely scrutinise the value of their security," he said. "This has revealed problems that might have remained hidden in a rising market, and those lenders are now looking to their professional advisors - in particular solicitors who have compulsory professional indemnity insurance - as a possible means of recouping any losses."

Mr Blakemore said that while all such problems will not be as a result of mortgage fraud, some will be, and the professional advisors may have been either inadvertent or willing parties to the fraud. In either case, they may well face a professional negligence claim from the lender.

"Solicitors are offered guidance by the Law Society on what to look out for in trying to identify possible mortgage fraud," he said. "Some examples from the guidance are the client is unusually uninterested in the transaction, the client does not usually engage in property investment on this scale, the current owner has owned the property for less than six months, the property has significantly increased in value out of line with the locality or type of property, the deposit is being paid by someone other than the purchaser.

Failing to identify one or more of these indicators - or failing to advise the lender of anything else that should raise the solicitor's suspicions about the transaction - may result in a professional negligence claim."

Mr Blakemore added that the problem has been exacerbated by the large number of newcomers to the 'buy-to-let' market in recent years and the huge number of associated mortgages that have been created.

"These will undoubtedly bring with them their own raft of problems and fair share of mortgage fraud," he said.