Thursday, 17 May 2012

Three good reasons for not instructing a solicitor recommended by an estate agent

You might not know it, but you could be paying more for legal services when moving home because of the recommendation received form your estate agent.   The reason for this is that many estate agents have ‘arrangements’ with solicitors under which they receive what is known as a ‘referral fee’  or as it is often described, a ‘kick back’.

Many of the solicitors who operate in this way do not absorb the referral fee in their fee but add the fee on to the fee they quote you.  This means that you could very well be paying as much as £200 more for the service than you would have otherwise paid had you shopped around and gone to a conveyancing solicitor direct.

Is this legal?  Well at present yes providing the estate agent and solicitor tell you about the arrangement before you make the decision to instruct the solicitor.  The question is how many of those involved actually disclose the referral fee.  Sadly I do not believe it is many.

It also raises the question whether instructing a solicitor recommended by a ‘tied’ estate agent will ensure you receive the best service available.  My experience is that where such arrangements exist the solicitors instructed are normally part of some ‘factory’ operation and in the main the service levels of those firms is very poor.  This could mean you will find yourself having to constantly chase and inevitably the move will take longer.

Instructing an agent with a ‘pet’ solicitor may also impair the solicitor’s ability to offer independent advice. The agent will have a vested interest in the sale completing. Once an agent has agreed a sale, they will want it completed so they will put pressure on the connected solicitor to complete without regard to your best interests. If your solicitor discovers a problem and considers he should advise you to withdraw, will he be prepared to do so if the agents on whom he relies for work tell him not to?

My advice is not to rely on your agent’s recommendation.  Shop around, visit websites, read the reviews on the service offered and do not be tempted by deals offered by some agents to ‘wrap’ your legal fees in with the agent’s fee.  Perhaps even choose your solicitor before you put your house on the market because many solicitors like us know which are the 'good' and 'not so good' agents.    And before you ask, no we do not get a ‘kick back’ for recommending an agent!

Wednesday, 2 May 2012

The fallacy behind mortgage fraud

Steps by some of the main lenders to push home owners down the route of only using certain solicitors has caused concern within the legal sector and has also led to increased expense for the consumer.  The main reason for this action seems to be the aim of the lender to reduce mortgage fraud.
Lenders take the view that by reducing the panel of solicitors undertaking mortgage work, and thereby monitoring those solicitors more closely, this will help to reduce the risk of mortgage fraud.
The suggestion is that sole cause of  fraud lies with solicitors who handle residential transactions.  I accept there have cases of fraud involving lawyers and other professionals and I also acknowledge that lawyers have access to large sums of money in handling this type of work.  The question is however can all of the incidents of fraud costing the industry over £1bn be attributed to the criminal activity of a small number of lawyers.  Is it also fair to use mortgage fraud as an excuse to restrict mortgage work to a limited amount of property lawyers at the expense of higher moving costs and a decline in conveyancing services?
In looking at these questions one must begin to understand from where the bulk of the fraud originates.  Surprisingly (or perhaps not), the majority of fraud stems not from crooked lawyers, but from individuals misrepresenting their personal circumstances. In fact over 90 per cent of attempted mortgage fraud in 201l was down to this failing.
Experian Identity & Fraud has revealed that fraudulent applications for mortgages increased by eight per cent in 2011, marking the fifth consecutive year in which the rate of mortgage fraud has increased.
Experian explain:
‘Around 34 in every 10,000 applications for mortgages were found to be fraudulent in 2011, compared to just 15 in every 10,000 in 2006. . Typically, these first party frauds involved falsifying employment status or financial information, and, most commonly, attempting to hide an adverse credit history’.
This would clearly suggest that, although I accept solicitors acting for lenders needs to be vetted and monitored, lenders should be doing more to stamp out the fraud which happens at the beginning of the process when the application is completed and often submitted by the applicant's independent financial adviser.

In a recent press release from the Council of Mortgage Lenders talk of a new scheme designed with this very aim in mind.  The CML explains:
 “….. the launch of a new mortgage verification scheme in September was the culmination of many months of carefully co-ordinated work we under took with HM.Under the scheme, lenders receiving mortgage applications that are not supported by adequate evidence of the declared income, or where fraud is suspected, can submit details via a secure link to HMRC. The tax authorities check the details that have been supplied to the lender against their own income tax and employment returns, helping to expose applications based on bogus claims about earnings or working history’.
The indicators are that some of these measures are working and as the CML reports mortgage fraud is now on the decline though I suspect that not much of this can actually be tied in with the rather inexplicable decision of lenders to arbitrarily restrict mortgage work to the exclusion of a large  number of honest and hardworking property lawyers.  

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at