Housing fraud and legal remedies

Dean Underwood Barrister

Twitter feed: @deanunderwood01

Commonly-encountered housing fraud

Commonly-encountered housing fraud

How do you assess your

organization’s exposure to

housing fraud?

• First step: understand the commonly-encountered risks

• Obtaining a tenancy by fraudulent misrepresentation

• applications under Parts VI and VII of the Housing Act 1996

• succession applications

• Subletting the whole of a let property

• Right to buy fraud

• Mutual exchange and assignment fraud

• obtaining consent by material misrepresentation

• Housing Benefit fraud

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Right to Buy fraud

Protecting the Public Purse 2014

• Audit Commission, last report: Protecting the Public Purse 2014

• total number of homes sold under

RTB and preserved RTB increased

fourfold over two years from 3722 in

2011/12 to 15,682 in 2013/14

• detected RTB fraud increased more

than fivefold since 2010,

• losses generated by fraud in 2013/14

approximately £12.4m

Protecting the Public Purse 2014

• Audit Commission, last report: Protecting the Public Purse 2014

• Local authorities

• struggling to cope with number of

applications within tight, statutory

deadlines

• unable to carry out sufficiently

thorough checks to prevent success

of fraudulent applications

Protecting the London Public Purse 2015

• London Boroughs’ Fraud Investigation

Group

• Report: Protecting the London Public Purse 2015

• 300 detected RTB frauds in capital in

2014/15, up from 131 in 2013/14

• value of RTB fraud trebled over same

period, from £9m to £26.5m

• estimate: at least 3% of RTB

applications may be fraudulent

• new trend in ‘no recourse to public

funds’ fraud

Protecting the London Public Purse 2015

Chair, Kevin Campbell-Scott:

“The significant sums involved and the

relentless increases in property values,

especially in London, have made RTB

discounts highly attractive, including to

fraudsters.

In the two years immediately after the

discount increase was implemented, there

was a near five-fold increase in the number of

RTB frauds detected nationally.”

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Protecting the English Public Purse 2015

• TEICCAF report of 2015

• RTB and ‘no recourse to public funds’

fraud have emerged as significant risks

for local authorities

• detected RTB fraud cases more than

doubled to 411, while their value

increased by nearly 145% to more than

£30m

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Protecting the English Public Purse 2015

• At least 3% of RTB applications in

London are fraudulent; at least 1.5%

in the rest of the country

• Extension of the RTB to housing

association tenants is likely to result

in similar levels of RTB fraud to that

encountered by local authorities

• With few notable exceptions,

however, housing associations do

not have the counter-fraud capacity

or capability to tackle such fraud.

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CIH recommendations

• Extend the statutory deadline for processing applications to allow local

authorities more time to investigate applications

• Give authorities new powers to ban applicants from exercising the RTB if

their application is turned down because it is fraudulent

• Implement a system of mandatory affordability assessments for all

applicants

• Prevent applicants from including a third party (other than a joint tenant) in

their mortgage application or from adding their name to the property deeds

• Prevent applicants from exercising the RTB if they already own another

property

• Government response?

Prevention and remedy

At a strategic level …

Six key questions for the

Board or Committee …

1. Do you have a zero tolerance policy in respect of fraud?

2. Do you have a corporate fraud team?

3. Does anyone have responsibility for fighting fraud across the organisation?

4. Are you confident you have sufficient counter-fraud capacity and capability to detect and prevent fraud?

5. Have you measured your organisations’ performance against the TEICCAF fraud detection benchmark analysis? (If so, what trends and risks did the exercise expose?)

6. Do you have appropriate and proportionate defences against emerging fraud risks, such as right to buy fraud?

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At a managerial level …

• Prevention is better than cure

• Identity verification: know who is

living in your accommodation

• passports

• current photographs

• Dedicated anti-fraud teams and

officers

• Education and training of officers and

managers

At a managerial level …

• Prevention is better than cure

• Regular tenancy audits: let them know

you’re coming

• Data sharing: the importance of

information-sharing protocols

• Using publicity: let them know what you’ll

do

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At a managerial level …

• … but a cure is better than nothing!

• Pre-action

• Tenancy fraud amnesties

• Letters before action: encouragement

to surrender

• Notice of intention to seeking

possession and notices to quit

• Repossession

At a managerial level …

• Prosecution:

• Housing Act 1996, sections 171

and 214

• Fraud Act 2006

• Prevention of Social Housing

Fraud Act 2013

• Financial recovery:

• Common law: claims for unjust

enrichment

• Proceeds of Crime Act 2006

• Prevention of Social Housing

Fraud Act 2013: Unlawful Profit

Orders

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Prevention of Social Housing Fraud Act 2013

Policy rationale

• Why a ‘new’ Act?

• Statistics:

• 50,000 homes occupied unlawfully in 2009; 98,000 in 2012

• Estimated annual cost to local authorities: £900m

• Existing remedies considered inadequate

• Political aims:

• To ensure social housing is occupied by those in greatest need

• To mitigate financial loss

• Material dates:

• Royal Assent: 31 January 2013

• In force: 15 October 2013 (E); 4 November 2013 (W)

Explanatory note

“Whilst the current law provides that a secure tenant who has

sub-let or parted with possession of the whole dwelling-house

ceases to be a secure tenant and that a tenant who is not

in occupation of the dwelling-house cannot be an assured

tenant (which enables the landlord to gain possession of

the dwelling-house more easily), this has not proved to be an

adequate deterrent to sub-letting and parting with possession,

as tenants only risk losing the tenancy of a property in

which they do not live.”

Overview

• Creates criminal offences of unlawful sub-letting by secure tenants and

assured tenants of social landlords … but not those in shared ownership

• Gives local authority power to prosecute 2013 Act offences

• Creates Unlawful Profit Orders (‘UPO’) requiring tenant to pay landlord the

proceeds of sub-letting

• Provides that assured tenants of social landlords lose security of tenure

permanently if they sub-let the whole of their home

• Enables the Secretary of State and Welsh Ministers to make regulations to

facilitate investigation of social housing fraud

Criminal offences

• ‘Lesser’, summary offence:

• Tenant ceases to occupy property as only or principal home and either

sublets or parts with possession of it, knowing that to be a breach of his

tenancy agreement

• Exceptions / defences: e.g. sub-letting due to violence or threats by

another occupant

• ‘Greater’, indictable offence:

• Tenant acts not merely in knowing breach of tenancy agreement but

dishonestly

• Dishonesty? R v Ghosh

• Knowledge that a reasonable and honest person would consider his actions

dishonest

• Exceptions / defences to lesser offence not available

Prosecution and sentences

• Prosecution

• Lesser offence to be prosecuted:

• within 6 months of the date on which the prosecutor became aware

of evidence sufficient to warrant prosecution,

• but not later than 3 years after commission of the offence, or the last

day on which it was committed if it was a continuing offence

• Sentence

• Lesser offence: fine not exceeding £5000

• Greater offence:

• on summary conviction, up to 6 months in prison, a fine not

exceeding £5000 or both

• on indictment, up to 2 years in prison, a fine or both

The unlawful profit order

• The Unlawful Profit Order (Criminal)

• Court –

• must consider making a UPO post-conviction

• may do so if it considers it appropriate

• may make UPO instead of- or as well as dealing with tenant in any other

way

• Maximum payable = tenant’s net profit (proceeds of sub-letting – rent

paid to landlord)

• Otherwise, amount payable is generally at court’s discretion

• If Civil UPO exists, Criminal UPO can only require payment of profits

exceeding amount of Civil UPO plus any unpaid amount of Civil UPO

• Any unpaid amount attracts interest at Judgment Act rate

The unlawful profit order

• The Unlawful Profit Order (Civil)

• Applies to:

• secure tenants and assured tenants of social landlords (PRPs and RSLs)

• who, in breach of tenancy agreement, cease to occupy their home, sublet or

part with possession of it, or part of it

• and receive money in return

• Does not apply to shared ownership leases

• Maximum payable = net profit (proceeds of sub-letting – rent / service

charges paid)

• Otherwise, amount of UPO is generally at court’s discretion

• If Criminal UPO exists, Civil UPO can only require payment of profits

exceeding amount of Criminal UPO plus any unpaid amount of Criminal

UPO

Security of tenure etc

• Act ensures parity between secure tenants and assured tenants of social

landlords

• security of assured tenants no longer ambulatory

• security lost permanently if, in breach of tenancy agreement, assured tenant

sublets or parts with possession of whole property

• does not apply to shared ownership leases

• SoS and Welsh Ministers may regulate to:

• enable prescribed persons to compel others to provide information for housing

fraud investigation

• create criminal offences of failure to comply

• see Prevention of Social Housing Fraud (Power to require information) (England)

Regulations 2014

Questions

• Will local authorities prosecute?

• Will they need to?

• Will the threat of prosecution result in keys handed in at the office?

• What use the UPO?

• Money spinner, or tactical device?

• Will it apply to tenants sub-letting at the Act’s entry into force?

• Will the Act result in the occupation of social housing by those in greatest

need?

Remedies in action

• 1996: Mark Kenny became the secure tenant of one-bedroom flat in Sidcup, Eltham

• 2014: Kenny made a RTB application, claiming £66,500 discount

• 2014: Housing fraud team discovered Kenny had bought a house in Eltham in 1999; and another

in Welling in 2012, where he had lived permanently since

• In interview, he claimed he still lived at the flat in Sidcup

• December 2014: he appeared at magistrates court for two offences under Fraud Act 2006

• January 2015: he returned the keys to the flat in Sidcup

• May 2015: he agreed to pay the local authority £7376 compensation, then paid the local authority

and pleaded guilty to making the fraudulent right to buy application

• July 2015: he appeared at the crown court and was:

• sentenced to 10 months in prison, suspended for one year

• ordered to work 150 hours unpaid in the community

• given a 3-month home detention curfew

• ordered to pay £4400 for the borough’s legal costs.

Housing fraud and legal remedies

Dean Underwood

Barrister

Contact details:

Dean Underwood

Cornerstone Barristers

2-3 Grays Inn Square

London

WC1R 5JH

Tel: 020 7421 1835

Fax: 020 3292 1966

Email: deanu@cornerstonebarristers.com

Twitter: @deanunderwood01

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