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Newsletter - July 2006
 
Banks Suffer Mortgage Fraud In Hong Kong
 
As reported in the press today, four people in Hong Kong, including a solicitor, have been arrested for mortgage fraud. According to the reports, two women posed as the owners of flats and applied for mortgage loans. To support their mortgage applications, they produced forged identity cards and income proof documents.
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The mortgage applications were approved and the mortgage loans were drawn down in February and April this year. The fraud was discovered when the real owner of one of the properties received a mortgage-related letter from the bank. The police are still trying to trace the mortgage monies.
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Mortgage fraud is a rising trend globally. Between 2002-2003 in Hong Kong, banks and finance companies were defrauded of nearly HK$100m. According to the Los Angeles Times, mortgage fraud tripled in 2003-2004 amounting to US$1 billion (HK$7.8 billion). Globally, over 35% of claims paid out by title insurers are for fraud on title or mortgage.
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Banks tend to suffer total losses in the event of mortgage fraud. Where solicitors are involved, it may not be possible to claim on their professional insurance as the current scheme in Hong Kong excludes partner fraud.
 
Title Insurance
 
Title insurance is a key tool to protect banks against mortgage fraud. It provides the bank with a direct contractual indemnity for loss suffered because of fraud on a "no fault" basis. Had the bank's loan in this case been title-insured, it would have been able to recover all losses from the title insurer. The premium is a one-off up-front payment and the policy lasts as long as the life of the loan.
 

 
For more information on how title insurance can protect you from fraud, please visit our website www.firstam.com.hk or contact us.