Gifts Donors and Anti Money Laundering

The rise in gifted deposits has without doubt created further work for conveyancers.  Not only is there a need to check the nature of the contribution and to take steps to ensure a lender is aware of the gift, a conveyancer is also  obliged to consider exposure to liability under the anti money laundering legalisation.    

On the face of it the donor of the gift is not a client, there is no retainer. This raises the question of whether the legislation can be said to impose an obligation.  Interesting the Legal Sector Affinity Group Anti-Money Laundering Guidance for the Legal Sector ( March 2018) contains no reference whatsoever to the donation of gifts and of any requirements in relation to the donation of funds towards the purchase of a property. 

The customer due diligence (‘CDD’) obligation clearly only relates to a person who retains a conveyancer to undertake a service which is regulated under the The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ( ‘Regulations’).  Strictly speaking a donor is not a client, and would not on the face of it be covered by Regulation 27 of the Regulations, that requires CDD to be applied when establishing a business relationship. Logically this must be correct,  The Donor has no direct relationship with the conveyancer, there is no retainer to provide a service, and the only connection is the existence of a relationship between the client and the donor.  

In fact, there is a duty on the conveyancer to advise the donor to seek independent legal advice before gifting the funds.  Clearly, if independent advice is sought the legal advisor would need to carry out CDD on the donor before providing that advice.  The same would apply if the contributor was looking to acquire a beneficial interest in the property to be purchased and sought separate legal advice for that purpose. 

So the starting point is there is no obligation on a conveyancer to undertake CDD on a donor unless with reference to Regulation 27 there is a suspicion of money laundering or terrorism funding.   

It could also be argued that if the donor is to send the funds directly into the conveyancer’s client account and the amount is £15,000 or over that this could be viewed as an ‘occasional transaction’, in which event there would be a need to undertake CDD on the donor. 

The more tricky question is whether there is a need to undertake a source of fund and wealth check on the donor where no suspicion of money laundering exists.  There is clearly an obligation to make checks on the funds to be used by a client to purchase a property as well as on the general wealth of the client.  But the question is does that obligation extend to checking where the donor has acquired the funds and  whether the amount of funds made available fits with the profile of the donor?  Again, the Guidance is not very helpful and has little if anything on what checks should be made. 

If a client says funds are coming from Granny then clearly there is a need for the client to produce evidence that is so, and to see a bank statements showing the money leaving Granny’s account and being credited to the clients account.  

If the funds are to be paid directly into the client account then there would be a need to make sure the source of those funds is checked and verified.   I mention that CDD would also need to be performed.    

The Guidance makes reference to ‘Know Your Client’ and of the need to capture information which will allow a conveyancer to create a profile of the client to assess the whether there is a fit between this and the nature and size of the transaction.  The difficulty with a donor is that as he or she is not your client it might be difficult without asking the right questions to carry out this assessment.  There are also data protection to consider and the related practical difficulties  in relation to privacy notices. 

There are some interesting academic questions surrounding the application of the Regulations  in relation to gift donations and the answer may be that conveyancers should be insisting that a donor instructs an independent advisor and requests that adviser to confirm that all CDD and AML checks have been undertaken.   

In the absence of that step, it seems the safest solution would be to always carry out CDD on donors as well as checks on the source of funds and wealth.  We treat a donor in the same way as the client and have  created a ‘pack’ which we send the donor to provide a privacy statement, to explain what is required, and to obtain the information we need to make sure that can carry out adequate checks on the donor’s funds and wealth.  

This may be viewed as excessive, but with the presence of some serious  crime sanctions for non compliance it is far better in my mind to be over cautious. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Are conveyancers over charging on ‘mum and dad’ assisted property transactions?

Introduction

The principle behind the insurance is that it protects the mortgagee’s (i.e. bank lending the money) title in the property if the donor of a gift or informal family loan goes bankrupt and  the donor’s creditors make a claim to the money as part of the donor’s assets.

But is it necessary?  Do all conveyancers actually understand the applicable law?

Background

The conveyancer is under a duty to both client and the client’s lender to ensure they obtain “a good and marketable title to the property and free from prior mortgages or charges and from onerous encumbrances which title will be registered with absolute title” (Solicitors’ Regulation Authority Handbook).

If there is a gift from a family member ( or a discounted purchase price when purchasing from a family member) or an informal loan the donor on the face of it will acquire an interest in the property. Gifted deposit insurance provides protection if the donor becomes insolvent and creditors of the donor make a claim putting the property at risk as well as the lender’s security.

The Law

The law behinds this is S339 of the Insolvency Act 1986 provides that if a bankrupt has within the previous five years “entered into a transaction with any person at an undervalue,” then “the trustee of the bankrupt’s estate may apply to the court for an order” to restore  the gift to the donor for the benefit of the creditors.

However S342(2)(a) offers the lender with protection stating that if an order is made under S339  this will not …. prejudice any interest in property which was acquired from a person other than that individual and was acquired in good faith and for value, or prejudice any interest deriving from such an interest”. Essentially the bank is protected from a Section 339 order by S.342 as long as it acts honestly and doesn't knowingly aid dishonesty. Its title in the property is therefore protected and in no way placed at risk .

The only time a  lender may not avail itself of this protection if the lender knew both that there was a gift/transaction at an undervalue and that the donor was already insolvent or a petition of bankruptcy had been presented when the gift was made. Hence the need for the conveyancer to carry our ID and bankruptcy checks against the donor.

Interestingly if this situation was allowed to arise then gifted deposit insurance would not assist in any event.

If the gift was specially made to put it beyond the reach of creditors, an order could be made under  Sections 423–425 of the Insolvency Act to restore the position to that before the transaction at an undervalue. Section 425 however would protect the lender if its interest was “acquired in good faith, for value and without notice of the relevant circumstances”.  Again unless the lender was aware of what was going on the lender would not be affected by the insolvency.

Council for Mortgage Lenders Handbook

This states:

‘If you are aware that the title to the property is subject to a deed of gift or a transaction at an apparent undervalue completed within five years of the proposed mortgage then you must be satisfied that we will acquire our interest in good faith and will be protected under the provisions of the Insolvency (No 2) Act 1994 against our security being set aside. If you are unable to give an unqualified certificate of title, you must arrange indemnity insurance (see section 9)

‘You must effect an indemnity insurance policy whenever the Lenders’ Handbook identifies that this is an acceptable or required course to us to ensure that the property has a good and marketable title at completion’.

Practical Implications

Providing the checks on identification and bankruptcy come back all clear,  it would seem from this analysis that an unqualified certificate of title could be given to the lender where there is a gifted deposit.

Is there a need to obtain a letter of postponement from the donor, that is a ‘gift letter’.  Probably yes in terms of good practice though the Land Registration Act 2002 does provide that a mortgagee has priority over any claim that the donor may have for the return of the gift,

Conclusion

By blindly insisting on indemnity insurance which appears on the above analysis of the law to be wholly unnecessary it seems conveyancers are not acting in their clients best interests.   

At the time the Insolvency ( No2) Act 1994 ( which made amendments to S342 (2) (a)  was passing through the then House of Lords Lord Coleraine said:

“the saving in that section [of the Insolvency Act] for a third party purchaser for value and in good faith will no longer be negatived merely by the purchaser’s knowledge of an earlier transaction at an undervalue or preference … the effect of the clause should be to speed conveyancing and greatly reduce the need for insurance in the cases where problems arise” (Hansard 1994 vol 554 at para 348).

Clearly the insurance industry is also very much guilty in terms of selling and promoting an insurance which seems to offer no purpose other than as a comforter to conveyancers.

There should also be a call made on the Council for Mortgage Lenders to review and to amend the Handbook to make the requirements  for seeking indemnity insurance on a gifted deposit clear and more in line with the Insolvency legislation.

Source :   *Gifted deposits and indemnity insurance: a risk assessment, Nick Piška, Conv. 2015, 2, 133-147  (Subscription required)

 MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

Conveyancers Duped by Million Pound Property Fraud - Was it Avoidable?

The news of a property fraud reported in the Daily Mail (http://www.dailymail.co.uk/news/article-3356929/The-thieves-stole-wife-s-house-sold-1-3million.html ) at the weekend should send a chill down the back of all conveyancers across the land. 

A young woman — who paid the full amount with no mortgage — had been duped into handing over £1.35 million to the a person purporting to be the legal owner of the property. 

The money was last seen on its way to a bank in Dubai.

The real owner was totally oblivious to the fraud until the Land Registry smelling a rat declined to register the property in the name of the young woman. 

There were two primary fraudsters.  One who took out a rental agreement on the property before the property was placed on the market, and the other who stole the identity of the real owner.  Between them they were able to fool the letting agent, the selling agent and both the selling and buying conveyancers. 

This was a fraud perpetrated at the highest level.  

So what could have been done to prevent it?  Probably not very much given the sophistication of the perpetrators. 

The question of whether negligence lies with either the seller or the buyer’s conveyancers must also be a vexed issue. 

So what lessons as conveyancers can we learn from these circumstances?

From a sale perspective there was nothing on the surface which would have alerted the seller’s conveyancer.  The ID supplied for the registered owner, that is the seller, was fake but unless it was obviously fake there was not much more one could expect the seller to do to identify the fraudulent  activity. 

Interestingly, had the seller made use of the Land Registry Alert procedure there is a possibility that the true owner would have been alerted about the proposed sale when the purchaser  undertook the OS1 search before exchange. Clearly conveyancers should all be advising buyer clients, especially the Buy To Let clients, to register for this type of alert. Failure to do so may in the future be viewed as a negligent omission. 

So what additional checks or alert factors should conveyancers as result of this incident consider?

Property of high value with no mortgage are at highest risk especially if they are rental properties. Conveyancers dealing with this type of property should perhaps check on the internet to see whether the property has been advertised for let recently.  In this case the fraudster tenant had only just taken out a rental agreement and had, which is unusual, paid the rent in cash. 

If instructed on this type property perhaps conveyancers should also look at the ID documents more closely and always arrange for the file to be referred to a senior member of staff for a second review. 

Suspicion should be heightened if the registered proprietor is abroad and there is a third party purporting to act for the owner. In this case the property had been put on the market purportedly on behalf of the owner by the person who had taken out the rental agreement.  Its unknown whether this was known to the seller’s conveyancer. 

Another alert factor is the instruction for the sale proceeds to be transferred to an account based outside of the Country.  If a conveyancer is instructed to transfer any funds abroad following a sale, there is now, I would suggest a strong, good argument  to pause and to take a more detailed look at the circumstances.  At the very least, the transfer should be referred to a Partner or other senior colleague for checking. 

So in short conveyancers acting in transactions of this type should keep a close eye on transactions involving:

• Property with high value with no mortgage of other charge 

• Property where the seller is shown as living at an address which is different from that of the property

• A seller looking to sell through an intermediary

• The transfer of funds to an account held abroad.

From a buyer's perspective perhaps there is now a case to consider raising some extra enquiries when it can be seen from the Land Registry Document that the property to be purchased is held by a registered  proprietor who is not in occupation and or which is occupied by a tenant.

Questions of this type which conveyancers may wish to  consider include:

1 Please produce from the letting agent references for the tenant and confirmation on how the rent has been paid i.e whether in cash or by cheque as well as confirmation that all standard money laundering and identity checks have been carried out on the tenant.

2 Please confirm the date on which the tenant took up occupation.

3 Please confirm that the funds to be transferred on completion are to be paid into a bank account held in the UK.  If the funds are to be paid into an account abroad please confirm that these will be held by you for 48 hours before the funds are remitted ( the reasoning here is that if the buyer turns up on completion to find the property occupied without vacant possession ) there may be some time available to prevent the funds from being remitted.  In the present case this would not have helped as the property was vacant at the time of completion.  If the buyer’s conveyancer  had known that the tenancy agreement was only granted prior to the marketing of the property and was now being sold with vacant possession then this may have rung some alarm bells. 

I am not sure whether these questions will find favour with the sellers solicitors but at the very least they may put the sellers solicitors on notice that the transaction is a high risk one and as a consequence raise the level of vigilance.

At the end of the day detection of fraud to a large extent is based on instinct and more often luck.   All practitioners can do is to ensure all the standard checks are carried out and that staff are trained on what to look out for and to remain vigilant throughout the transaction. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

Veyo - A Trojan Horse?

The Veyo PR train continues to gain momentum with the bold announcement the week of attracting ‘orders’ in its yet to be released on line case management system from ’47 %’ of the conveyancing fraternity. 

Talking in the Law Society publication - Law Society Gazette - Stefanie van den Haak, commercial director of Veyo, said: ’The number of enquiries since the pricing was announced has been phenomenal but we are not complacent. We know we are offering something that is unique and we need to continue to promote our USPs. We are keen that conveyancers see for themselves that there is nothing comparable in the market.’

Going on record, and claiming such a significant number of potential customers is a bold step, and one which will either herald the onset of a conveyancing revolution or the start of a slippery slope for those investors behind the product, which includes of course the Law Society.   Ten million of pounds is a large sum of money to gamble, and on top of this also lies the professional reputation o a body which has been representing  and governing the interests of solicitors since 1875. 

So where does the truth lie?  Are conveyancers flocking to offer support for the product or is it the consequence of a well managed and orchestrated PR machine?  There is no doubt that Veyo has succeeded in the promotion of its brand as well as making Veyo a hot topic for discussion.   Hats off to Miss Vanden Haak and her team.  Even though much of the discussion has focused on negative features of the product, the fact is that any publicity whether it be good or bad must be a welcome outcome for Veyo.   

So in answer to the question, I very much doubt that half of the conveyancing businesses in the Country have ‘signed up’ or even at the very least registered an interest with Veyo.  I suggest the  claim is nothing other than ‘sales talk’ designed to appeal to our inherent sheep  gene.   If there is any truth in the figure it must represent a measure of the level of curiosity that  clearly  exists. Its out there in abundance. Curiosity however is one thing, from an investors point view hard cash is all that counts.  

One must also question the perimeters of the basis on which the claim is made.  The Land Registry has over 7000 firms registered with conveyancing interest.  So does this mean Veyo has received firm orders from over 3000 businesses?  I say ‘orders’ because this is how it was stated in the press release. Sounds fanciful, but clearly would if true, represent an epic achievement on the part of Veyo’s sales team.  

One should also ask how many completions do these 47% of conveyancing businesses produce each year, and what percentage of the overall completions number for all firms does this represent.  Keep in mind that the top 200 conveyancing business have around a 36% to 40% share of the market. 

I can understand why there is a need  for the statement to be made when the commercial success of Veyo hinges precariously on the products purported unique selling point.  Indeed Miss Vanden Haak makes specific reference to the importance of this in her statement.   So what is the USP?  Difficult to tell at this stage but it seems to centre around a ‘chain matrix’ and a ‘deal room’.   These features may explain why Veyo needs to convince us all that it already has accumulated critical mass since without this the product losses its USP.  It is as simple as that.  What is the point of singing up and parting with you hard earned cash if all you  are left with is an incomplete picture of a transactional chain?   The Land Registry spent  millions of pounds on a similar project which it then had to abandon in 2009 because of lack of interest. I am not sure why Veyo believes the market will take a different view now, especially when it will involve having to hand over money for the privilege. 

Only time will tell if the statement is true or not.  One thing is for sure that even with 47% of conveyancers as users this still means there are 53% who are currently not interested and unless these firms can be won over the platform and its USP will become meaningless.   

Just a thought.  If you were an investor in Veyo I am sure you would be thinking of Plan B to cover the prospect of the product nose diving.   It seems obvious to me that one plan B must be for Veyo to enter the market as a business offering a conveyancing service of its own. It already has the profile and brand awareness as well as, if you believe the hype, cut throat technology.  A trojan horse in the making.   The only thing that would prevent this from happening is its commercial tie with the Law Society.  Now that would be a story! 

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 davidpett@m-j-p.co.uk

How many conveyancers give the correct advice on building insurance ?

Do you advise your client on insurance or do you make it clear that you are not an expert on insurance matters and that the client is better talking to an insurance expert?  If you do advise I suspect  you make think differently when  you read through what follows.

In line with current conveyancing practice if you are instructed by the client to check an insurance policy and you agree to do so there is an obligation on you to check the following issues:

1. Is the amount of cover adequate?
2. Is the sum index linked?
3. Are the risks insured adequate?  Cross referencing perhaps to the result of your environmental search result. 
4. Have all particular features  of the property such as a thatched roof been disclosed and are they adequately insured?
5. Is the property attached to an adjoining property, if so does the insurance extend to damage to a neighbouring property where practicable? 
6. Does the policy comply with the buyers lender requirements?

Most leasehold properties are cowered by insurance put into effect by the Freehold owner.  The policy still  needs however to be checked in the same way.  Additionally there may need to be extra cover put into effect to cover damage caused by an uninsured risk.  The client may remain liable under the lease including the covenants to repair and pay rent.  Some policies do not extend to flats where a resident is claiming social security benefits. 

Though the need to check where a lender is not involved is something which I would not offer to do ( I am not an expert in this field ) I would always make sure that where the client is borrowing  the client is made aware of the lender requirements for insurance.  It would be negligent not to do so. 

A lender’s particular requirements, set out in part 2 of the CML handbook, will stipulate:

-whether the buildings insurance policy must be in the joint names of the lender and the owners of the property, or whether it is sufficient for the lender’s interest to just be noted on the policy the maximum excess which is acceptable to the lender

-whether the lender requires written confirmation from the insurance company that they will notify the lender if the policy is not renewed, or is cancelled; and

-whether the lender requires a copy of the buildings insurance policy, and the last premium receipt, to be sent to them

It is also necessary to make the client aware of the need to take care and not to make a misrepresentation to the insurer. 

So next time you come to consider insurance as part of the exchange process do keep in mind the above and make a clear decision on whether to take on responsibility for advising or whether to make it clear to the client that the time has come for the client to take advice from an insurance specialist.   This is something which you may wish to address and make clear in the terms of your retainer. 

MJP Conveyancing  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 davidpett@m-j-p.co.uk

Demand more for the fee you pay to your estate agent

I always make a big effort to manage my clients expectations when  taking on new instructions. I do this because some clients may be buying a home for the first time and other clients arrive on our door step with  a distorted expectation stemming from discussions with the estate agent.  I am not sure why some agents believe that conveyancers  have attended Hogwarts.  I am certain however that by providing a client with misinformation about the conveyancing process some agents simply do not do their clients any favours. 

You pay your estate agent a small fortune to market your property and perhaps the time has come for us all to expect the agent to do more than put a ‘For Sale’ board up and place a few advertisements in the local newspaper.  A simplistic view I know and I must qualify the preceding and following observations by acknowledging that not all agents are the same.  There do exist pro active agents who often prove very helpful. 

So what could the agent be doing to help to speed up the process of a house sale?

To begin with it would be good to know that your agent has some knowledge of the legal process behind selling and buying a home.  How many agents have actually taken the time out to spend time with a conveyancer to understand the steps involved and more importantly the reasons why delays can arise.   If an agent devoted the same amount of time to learning about conveyancing as some agents  do in chasing a conveyancer for updates there would be vast reduction in the the number of interruptions conveyancers receive each day and a massive improvement in turnaround times. 

I did send an email around not too long ago inviting agents to a free training session.  The idea was to provide an overview of the selling and buying process.  Surprise, surprise I did not receive one acknowledgement let alone an acceptance! 

If you sell a home there are what are known as transaction forms to complete.  These set out details on the property such as council tax banding and particulars of the items you are leaving in the home.  These are forms which normally take a client sometime to compete and there are some clients who need help in completing the forms.  I have never understood why the selling agent does not hold a stock of these forms so hand to clients when it comes to the marketing of the property.  It would save so much time and allow the conveyancer to send out the contract pack much quicker. 

Helping the client to get  together to pass to the conveyancer the warranties, guarantees and planning and building documents would also make life so much easier for the conveyancer.  We spend so much time on chasing clients for forms and documents and this is often the source of major delays. 

Once the transaction is up and running the agent should not telephone/email the conveyancer every day seeking an update.  Rather than helping these constant interruptions only serve to cause delay.  We have ploughed several thousands of pounds into developing a state of arts online tracking systems which clients love and which is accessed by our clients around 13,000 times each month.  The system also allows the selling agent on sales to receive the same updates but to actually get an an agent to use it is simply impossible.  The mentality is why should I access an online system when I can try and get the information by telephoning.  Agents seem obsessed by the telephone.  

Last month our support team took over 4000 call of which 70% were from agents.  These calls involved over 150 hours of manpower which we could have used far more usefully in progressing transactions. 

The other way agents could help and is to give up on creating a blame culture.  Some agents enjoy playing one party to a transaction against the other.  Why?   All it does is to fuel unnecessary stress and make the whole process even more painful. 

The agent could play a far bigger role in helping the conveyancer when it comes to fixing a completion date.   This can often prove to be a logistical nightmare and trying to get the agent to call the other agents involved to come up with a mutually acceptable completion date would help to save so much time and wasted energy. 

I suppose what I am trying to say is that if there was a closer working relationship between the agent and the conveyancer, and a better understanding of the selling and buying process on the part of the agent,  the time it takes to sell a property could be much shorter and less stressful.  Is this likely to happen in the future?  I very much doubt it.  Agents are not going to change when there is no need to do so given the very high fees they charge. Why do more work than is necessary?

Perhaps some conveyancers who pay agents for referring home sellers to them are partly to blame.  Would they really wish to do anything that could rock the boat?

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 davidpett@m-j-p.co.uk