The client, a business professional, faced a serious allegation of mortgage fraud following claims that income figures submitted on two mortgage applications had been materially falsified. The client faced charges under the Fraud Act 2006. Following intervention at the pre-charge stage, the Crown Prosecution Service declined to bring charges, finding insufficient evidence of the requisite dishonest intent.
Background
The client sought to remortgage their primary residence and secure a buy-to-let mortgage on an investment property. Given the complexity of their financial affairs, including variable director's drawings, dividend income, and retained company profits, they engaged an independent mortgage broker to manage the applications on their behalf.
Both applications were approved, with the client securing a combined loan facility significantly in excess of what their declared personal income alone would have supported.
Following a routine audit sometime thereafter, one of the lenders referred the matter to the National Crime Agency. Investigators alleged that the income figures submitted across both applications had been inflated by approximately £65,000, enabling the client to secure mortgage offers that would not otherwise have been available to them. The client was arrested and interviewed under caution, and a file was submitted to the Crown Prosecution Service. They faced potential charges under section 1 of the Fraud Act 2006 (fraud by false representation) and, alternatively, section 2 (fraud by failing to disclose information).
The client denied any wrongdoing. Their account was consistent and clear: they had instructed a professional mortgage broker to handle the applications on their behalf, had provided that broker with accurate and genuine financial documentation, and had signed the completed applications in good faith on the understanding that the figures reflected the documentation they had supplied. The client had no knowledge of any falsification and had not reviewed the applications in granular detail prior to signing, relying on their broker's professional expertise.
Approach
The central legal issue was whether the requisite mens rea, dishonest intent, could be established against the client personally, given the involvement of a third-party intermediary. Fraud by false representation under the Fraud Act 2006 requires that the defendant made the representation knowingly, without belief in its truth, or recklessly as to whether it was true or false. The prosecution's case rested on constructive knowledge, the suggestion that the client ought to have known the figures were inflated.
The strategy adopted was to challenge this on a number of grounds:
A lay applicant is not generally expected to audit or verify the technical work of a professional intermediary engaged for that purpose.
The client had no financial services background and reasonably placed their trust in the broker's expertise and integrity.
The original documentation provided by the client to the broker was verified as accurate and unaltered.
A forensic review of the documentation trail between the client and the broker demonstrated that the broker had adjusted the income figures without instruction or authorisation before submitting the applications to the lenders. This was corroborated by a direct comparison of the documents the client had supplied against the figures appearing in the final submitted applications.
Submissions were advanced concerning the limits of principal-agent liability in the criminal context. Whilst a principal may in civil law be bound by an agent's acts within the scope of actual or apparent authority, criminal liability for dishonesty cannot ordinarily be imputed to a principal solely by virtue of an agent's fraudulent conduct, particularly where the principal had no knowledge of and derived no additional benefit from that dishonesty beyond what they legitimately expected.
The pre-charge representations also placed the client's unblemished personal and professional record before the CPS, including references from professional bodies attesting to their integrity.
Outcome
The Crown Prosecution Service declined to charge the client, concluding that there was insufficient evidence of the requisite mens rea to provide a realistic prospect of conviction.
The broker was subsequently charged separately. Following a guilty plea, the broker was sentenced to 30 months' imprisonment.
The client's mortgage lenders were notified of the outcome. One lender agreed to vary the terms of the mortgage to reflect the client's accurately declared income; the second accepted a partial early repayment in satisfaction of the excess facility.
Key Takeaways
Mortgage fraud allegations do not automatically succeed where a third-party intermediary was involved - the prosecution must establish the defendant's personal knowledge of and participation in the falsification.
Early engagement of specialist legal representation, particularly prior to or immediately following a police interview under caution, is critical in shaping the outcome at the pre-charge stage.
A thorough forensic analysis of the documentation trail between client and broker can be decisive in establishing or displacing knowledge of the alleged falsification.
Pre-charge representations to the Crown Prosecution Service represent a vital opportunity to prevent charge and avoid the serious reputational, financial, and personal consequences of a criminal prosecution.
This case study has been prepared for illustrative purposes only. All identifying details have been anonymised to protect client confidentiality.
