Mortgage lenders are using “no win, no fee” solicitors to threaten property surveyors with negligence claims for valuations on homes that have since suffered steep falls in value and been repossessed.

So-called “confetti letters” are being sent to valuers on behalf of lenders, after a number of solicitors approached banks offering to investigate the accuracy of valuations by their surveyors, The Times has learnt.

The letters question whether the original valuation was accurate at the time the borrower bought the property and notifies the valuer that they are under investigation.

The Royal Institution of Chartered Surveyors (RICS), which represents 100,000 surveyors, accused solicitors of threatening valuers without any evidence of malpractice and putting their businesses in jeopardy by sending the letters, which the valuers must report to their professional indemnity (PI) insurers.

David Dalby, the director of residential for RICS, said: “The letters state that the lender has suffered a loss in selling the property but do not indicate whether this is attributable simply to a decline in the market, or whether they have evidence that suggests the original valuation was excessive.”

The action is the first sign that banks, which offered mortgages worth up to 125 per cent of a property’s value during the boom, are seeking to place blame at the door of surveyors and recoup huge losses after falls in value of as much as 40 per cent for some properties. About 90,000 homes have been repossessed since the beginning of 2007, according to the Council of Mortgage Lenders.

Valuers were sued for negligence in the aftermath of the recession of the early nineties and had feared similar litigation as a result of the present downturn. There is evidence that surveyors have taken a more cautious approach to valuing homes since prices began to slide and some have been accused of undervaluing properties to shield themselves from the threat of future lawsuits.

RICS said that the letters presented a significant problem for valuers and could result in them going out of business because their PI insurer could brand them a high risk.

RICS said that, even if an investigation did not result in a lawsuit, the PI insurer might increase the cost of a renewal quote or refuse to renew the policy altogether, forcing the valuer to close down.

The group is also concerned that some smaller firms of surveyors may feel obliged by the letter to pay a settlement sum even though they were not negligent.

Mr Dalby said: “There has been a significant increase in the use of this type of letter, rather than the more appropriate approach, which would be to undertake the initial investigation to identify whether the original valuation was correct, based on market evidence available at that time, or if the surveyor had been negligent in the advice he gave.

“It should be stressed that the majority of lenders continue to take this latter approach, with only a small minority taking advantage of the ‘no win, no fee’ offer being made by certain firms of solicitors.”

The industry body said that it had asked the Council of Mortgage Lenders (CML) and the Law Society to consider advising alternative courses of action.

The CML acknowledged that there was likely to be an increase in the number of such letters but added: “This is not a mainstream practice among lenders. Most will not accept the services of ‘no win, no fee’ solicitors, and will work with the valuers because they understand the implications for their insurance. However, lenders would only send the letters where they think a claim may be pursued.”

It is thought that most of the letters relate to repossessions of properties bought with sub-prime and buy-to-let loans from smaller, niche lenders.

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