RTE’s documentary “Michael Lynn - the Fugitive” outlined how Mr. Lynn defrauded banks out of millions of Euro. In this article, I outline how the tactics used by Mr. Lynn were of their time and would not work today.
Mr Lynn’s fraud was quite simple in its operation. He would contract to purchase a property from a legitimate vendor and apply for mortgages from multiple lenders to finance the transaction. While it is standard for property purchasers to shop around for the best mortgage rate, and drawdown funds from their preferred lender, Mr Lynn drew down mortgage funds from multiple lenders on the same property. The ability of Mr. Lynn to represent himself in the transactions, allied to lax policies from the lending banks, created the perfect environment for him to perpetrate his scheme with impunity.
When someone purchases a property and relies on a mortgage to do so, they engage a solicitor to represent them in the transaction. This solicitor investigates the property’s title and only once satisfied that it is perfected, will they advise their client to sign the contract. At this point, the solicitor requests the loan funds from the lending institution. The lender doesn’t investigate the property’s title but rather relies on an undertaking from the purchaser’s solicitor that the title has been perfected and that after the sale closes, the solicitor will register the bank’s charge on the title and submit the property’s original title deeds to the bank.
Mr. Lynn applied for, and was readily approved during the heady days of the Celtic Tiger, mortgages to finance the purchase of properties. Once contracts were signed, he would requisition funds not only from one bank, but several, all of which relied upon his undertaking that the title had been perfected and that their charges would be registered on the property post-closing. Had Mr Lynn not been acting for himself, the fraud would only have been possible had he managed to convince an accomplice solicitor to cooperate. As he was allowed to act for himself, he had a free hand in deceiving multiple banks to lend on foot of a security on the same property, leaving Mr. Lynn to spend the surplus funds as he saw fit. The introduction of the Solicitors Regulations 2009 precludes a solicitor from giving an undertaking to a lending institution in a transaction where (s)he, or a connected party, has a beneficial interest in the underlying property used to secure the loan. This regulation, had it been in place at the time, would have scuppered Mr. Lynn’s strategy.
While the ability to give undertakings to banks to register charges on properties he was purchasing for himself was a key enabler to Mr Lynn, his scheme would have been foiled far earlier had it not been for the lack of robust policies amongst the Irish lending institutions. When a purchase closes, the purchasing solicitor has a legal obligation to register the new owner of the property with Tailte Éireann and where applicable, the lending bank’s charge on the property. All Irish banks now have diligent procedures in place such that if they are not in receipt of the property's original title deeds and proof that their charge has been registered, promptly after the closing of a sale, they will contact the purchasing solicitor to query why they haven’t fulfilled their undertaking. The banks, which will ultimately raise the issue with the Law Society, take failure to respond promptly very seriously. However, as outlined in the documentary, many banks during the Celtic Tiger had no policies to follow-up on undertakings and took the view that so long as the repayments were being made, why make a fuss. Alas this laissez-faire approach backfired when the banks realised, to their horror, that many had been lending against the same property, as was the case with Glenlion House in Howth, which although valued at €5.5m, had loans secured against it of over €11m.