Dishonest valuations - lender wins mortgage fraud case

In Cheshire Building Society v Dunlop Haywards (DHL) Ltd (T/A Dunlop Heywood Lorenz) and others, the building society sought summary judgment against the defendant valuers who in turn sought an indemnity against its director, M.

M had valued premises at £16 million with the benefit of three new business leases, and at £10.5 million with vacant possession. In reliance on this, the building society advanced £11.5 million to its customer. The proposed new leases subsequently turned out to be bogus and the true valuation of the property was only £1.5 million. The customer subsequently defaulted and the building society issued proceedings against the valuer and thereafter sought summary judgment for the substantial losses it suffered. In order to succeed, the building society had to establish that the defendant had no realistic prospect of successfully defending the claim in deceit.

The court found that the fact that the building society was the object of a mortgage fraud was obvious. But had M been dishonest in the valuations he had provided; or simply a negligent tool of the fraudsters? It was clear from the evidence that M had been dishonest:

• There was no record of payment to the valuers for the valuation which suggested that either no payment had been made or it had been made direct to M personally;
• M was aware of the purchase price of £1.4 million;
• The terms of the leases were so onerous no tenant would have accepted them; and
• Mortgage fraud had been proved against M in other proceedings in similar circumstances.

The building society was therefore entitled to summary judgment, as were the valuers against M. Although a trial and an exploration of the available evidence will often be required, if the evidence of fraud is clear and obvious, summary judgment is an appropriate, quick and ultimately less expensive way to obtain judgment.
With mortgage fraud and overvaluations once again appearing in the market, this case is a timely reminder that the courts will take a robust stance, and that summary judgment can be entirely appropriate in this class of case.

For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397, Alexa Highfield on +44 (0)121 213 2396 or Amie Ryalls on +44 (0)121 213 2360

This published article may contain information of general interest about current legal issues, but does not give legal advice.