Mortgage lenders could be left uninsured on defaulted loans as a result of "deceptive and misleading" conduct within the property valuation industry, according to Herron Todd White CEO Brendon Hulcombe.

The head of the property valuation company said some firms are using unqualified individuals, such as university students, to inspect properties without supervision, before having a certified practising valuer sign the reports for mortgage lending clients.

If an unqualified person inspects the property, the underwriter can place a retrospective clause on the valuation, which would make the lender's professional indemnity insurance null and void should a claim be made.

A retrospective exclusion of valuations could occur because the industry's professional indemnity insurance is underwritten on a 'claims made' basis, meaning that the policy wording at the time a claim is made is enforced, rather than at the time of the incident.

"With this fully exploitable option available to the underwriters, all Australian bank and non-bank lenders that have either knowingly or unknowingly engaged property valuation firms that use this practice, face the great possibility of being fully exposed and uninsured on every file in which the property valuation has been generated by a student," Hulcombe said.

Hulcombe said the practice was most prevalent in Western Australia and Victoria. In Victoria the property valuation industry is not regulated, however most other states and territories, including WA, require a valuation to be conducted by a certified practising valuer.

Hulcombe said that while many lenders are unaware of the problem, there may be some individuals who are turning a blind eye to the fraudulent practice to ensure loan approvals are approved without delay.

It is difficult for a lender to check the legitimacy of a valuation, as there are alleged instances of certified practicing valuers signing off on inspections conducted by unqualified individuals.

Hulcombe said that some banks are now undertaking stakeouts of property valuations to ensure a certified practising valuer is conducting them. Another alternative is to take legal measures, including having a statutory declaration signed, to ensure the property valuation firm uses a qualified individual for all property valuations, according to Hulcombe.