Last month, Chelsea Building Society and Bradford & Bingley revealed they had set aside a total of £312m for mortgage fraud and both signalled their intent to take action to recoup losses.
“A tsunami” of litigation action is expected in the courts but experts warn much of this may not find in lenders’ favour.
Mortgage Promotions director Nick Baxter, who acts as an expert witness in mortgage litigation cases, says there is already “a massive upturn” in legal action against surveyors and solicitors. But he believes courts are unlikely to find in favour of lenders and says many cases are already being labelled as “non-transaction”, whereby the lending is deemed to be so negligent that any possible fraudulent overvaluations are deemed irrelevant.
He says: “Back in the early 1990s, there were only marginal arguments for negligent lending in the mortgage fraud cases but now it is all up for grabs and lenders could lose out a second time round. I see a tsunami coming that will make the last round of mortgage fraud cases pale into insignificance.”
Collegiate legal and claims director Martin Archer also predicts that lenders will have a tough time winning their cases in the courts. He argues that after the last housing crash, judges thought that lenders could have prevented frauds through better checks.
He says: “It seems that lessons have not been learned by the lenders and it will be interesting to see how the courts judge lenders’ practices this time round.”
PYV chief executive Neil Pointon warns that, regardless of court decisions, advisers could see their personal indemnity insurance adversely affected by the legal actions.
He says: “The news from Chelsea does raise concerns and it does not paint the industry in a good light.”