The increasing threat of identity crime in the real estate industry

Identity crime is happening in Australia today. In fact, according to the Australian Federal Police, it is one of the most common crimes affecting the Australian community, costing upwards of $1.6 billion annually.

Whilst many organisations have fraud detection processes and systems in place, experienced fraudsters can still exploit the information that is shared between businesses to commit fraud with their sophisticated methods and evolving techniques.

QLD’s current VOI requirements for REAs

In Queensland, real estate practitioners are required to take reasonable steps to verify the identity and ownership of property together with the property description before auctioning, selling or leasing a property (section 19, Property Occupations Regulation 2014). The legislation does not make clear what would be considered ‘reasonable’, however, the Office of Fair Trading sets out guidelines for verification of identity and property ownership.

Given that the Office of Fair Trading will consider compliance with the OFT guidelines as having fulfilled the “reasonable steps” requirements of the law, the REIQ strongly recommends that all real estate practitioners follow the OFT guidelines.

There are different identification requirements depending on whether the seller is an individual, company or trustee of a trust. In essence appropriate identification should be sighted and verified and a title search carried out on the property to confirm the property description.
Real estate practitioners who fail to meet their obligations to verify identity and property ownership may be subject to disciplinary action initiated by the Office of Fair Trading or a potential civil action by a person suffering loss as a result of the real estate agent’s inaction (i.e. a buyer who has purchased property from a seller who is not the true owner, or the true owner of the property).

Fraudulent activity in the real estate industry

You may think that fraudulent activity will never happen to you, but any business can be a target. Here are a few recent, Australian examples:

July 2014

A Canberra property owner discovered that her property had been sold while she was living abroad in South Africa. It’s understood that the owner became aware of her property’s sale after contacting her property manager to query why she’d not been receiving rental payments.

During the court proceedings that followed, it was noted that neither the real estate or solicitor conducted sufficient checks to confirm the instructions were being provided by fraudsters, rather than the true owner.

August 2017

A Melbourne-based mother and son duo were left in shock after learning that the deposit they’d made on a property in August was instead given to a serial con artist for a house that wasn’t on the market.

Con artist Michael Drljaca was found guilty of obtaining property by deception, proving that even if you trust the individual, due diligence should still be followed.

The importance of due diligence

In a recent survey conducted by InfoTrack of the Australian real estate industry, it was revealed that 40% of agents have concerns about fraudulent activity, while 50% of agents are unsure of VOI requirements and use an internal process within their agencies.

Having a robust VOI process in place not only helps you to minimise fraudulent risk but also helps you to know who your customer is, which is becoming increasingly important as the volume of international property transactions continues to increase. To conclude, follow the VOI standard wherever you can. If you find yourself in a situation where this is not possible, use your best judgement and ensure you conduct due diligence in taking reasonable steps to verify identity.

The solution

To ensure that your agency is following the best VOI practice possible, consider the following:

Don’t store identity documents on-site, they could be stolen or damaged due to fire or flood.
Put a standard procedure in place to ensure that there is a consistent process in place.
If you notice anything suspicious, conduct further checks until you are satisfied.