Showing posts with label lender. Show all posts
Showing posts with label lender. Show all posts

Friday 13 May 2016

Conflict - Do I need to report to my lender client or not?

The scope for conflict in a conveyancing transaction when acting for a buyer and the buyer’s lender is extensive and is often overlooked by busy practitioners.

It is clear from the Court of Appeal decision in Mortgage Express Limited v Bowerman & Partners [1995] The Times, 1 August that in circumstances where a conveyancer acts for both the borrower and lender in the course of a residential conveyancing transaction, although the conveyancer’s implied duty extends beyond referring matters of title to the lender, the duty only extends to disclosing information that might have a material bearing on the lender's potential security or its decision to lend

In other words, matters which could lead to the lender’s surveyor/valuer reconsidering the adequacy or otherwise of the value of the security to be taken from the client to secure the mortgage, or the ability of the lender to sell the property quickly should the mortgage be foreclosed, or the clients affordability to repay the loan.

Examples include:

The potential contamination of the land
Serious flood risk
Boundary issues
Client’s disclosure of redundancy or dismissal
Close proximity to HS2 route
Sub-sales or where the current owner has owned the property for less than 6 months.

So what happens should information come to a conveyancer’s knowledge which gives rise to a conflict of the interests between those of the client and those of the lender?

In these circumstances where the information is of a confidential nature, the conveyancer must either obtain the client’s consent to disclose the information, or decline to act for both parties.

The conveyancers ( defendant ) in  Mortgage Express Limited v Bowerman & Partners [1995] The Times, 1 August, were instructed to act for Mortgage Express Ltd and the prospective purchaser of a flat at Queensway, London, for the sum of £220,000.  Prior to exchange of contracts, the conveyancers discovered that the property was the subject of a sub-sale to the vendor which was to be completed contemporaneously with the purchase for £150,000. The lender had agreed to make a loan of £180,150 based on a valuation of £199,000.The conveyancers reported the sub-sale to the client who confirmed that he was prepared to accept the price as he wished to purchase this particular property.

The Conveyancers were satisfied with this response but did not inform the lender of the existence of the sub-sale. The lender satisfied the court that if it had been informed of the sub-sale, it would not have lent the purchase money to the purchaser, and alleged breach of duty and/or negligence on the part of the conveyancers.

At first instance, Mrs Justice Arden held that a conveyancer’s duty to his respective clients is to protect their respective interests when carrying out their instructions, and found that the conveyancer owed a duty of care to report to the lender the information he had about the sale price.

The Court went so far as to find that the solicitor is bound to take some action in relation to 'any information which puts him on enquiry as to the accuracy of the valuation' and that the failure to disclose any such information amounted to negligence.

On appeal, he Court of Appeal held that the information concerning the price and the existence of the sub-sale was not confidential to the client and was of equal importance to both clients, albeit for different reasons.

On the facts, the court held that the information might have led a reasonably competent solicitor to form the view that the information might have caused the lender to doubt the accuracy of its valuation and, as a consequence, the information ought to have been passed on to the lender. During the course of its judgment, the Court of Appeal re-affirmed the duties of a solicitor in circumstances where the information is of a confidential nature to the borrower.

The Court of Appeal added that it was not the solicitor's duty to comment on value, but to disclose information which might cause the lender to doubt the accuracy of the valuation.

Interestingly the suggestion was that if the difference between the sub sale price and valuation was not significant then there would not have been a duty on the conveyancer to report.  In my view and with reference to the requirements of the CML Handbook I consider it would be dangerous not to report even if there difference was only small.

Practical Implications

It is clear that a practitioner will need to make a judgment call to determine what information it receives could be regarded as confidential to the client and which is not.  If it is confidential ( e.g. loss of job) then the client’s consent will be required before reporting the information to the lender. If as in the above case it is not then there is no need to seek consent, though in practice the client should be alerted and warned that the reporting could lead to the withdrawal of the mortgage offer.

The situation can be helped through the inclusion of a provision in the conveyancer’s terms and conditions which gives the conveyancer express authority ( without further recourse to the client ) to disclose matters to a lender when a possible conflict arises. Even with the existence of such a clause it would still be advisable to make the client aware.

If in a conflict situation there is a clear instruction by the client not to disclose then the practitioner should decline to act for both clients straight away.

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


Friday 17 October 2014

Lender's Certificate of Title

When a client is reliant on a mortgage to fund their purchase of a property, there are certain requirements which a Solicitor must meet before they are able to request the mortgage advance from the lender in anticipation of completion. Solicitors request mortgage monies from the lender by submitting a form known as the Certificate of Title – COT for short; this article provides a guide of the process leading up to, and including, completion.

Before your Solicitor is able to submit the Certificate of Title, the Solicitor must ensure that all outstanding matters have been resolved, as, by submitting this request, the Solicitors is providing their confirmation to the lender that they have complied with, and satisfied, their requirements as outlined in the Council of Mortgage Lenders Handbook – the CML. A Solicitor must be able confirm the property has a good marketable title.  Such matters include, but are not limited to, the following:

Ø  ID checks have been carried out
Ø  Any potential gift elements connected to the transaction have been considered and acted on appropriately
Ø  All enquiries with the seller’s solicitors have been resolved to a satisfactory standard
Ø  All search results have been returned, reviewed and are clear of issues.
Ø  The valuation report has been considered and is clear
Ø  Client’s details, the purchase price and property details concord with the mortgage offer. Also, any special conditions attached to the mortgage offer have been considered.
Ø  Any prejudicial issues affecting the valuation of the property must have also been reported to the lender during the course of the transaction and resolved.
Ø  Confirmation that there are no onerous covenants or lack of rights of access or services to the property.

Once the above conditions have been satisfied, a transaction is able to proceed to exchange and completion, for which, a Solicitor will require a signed Contract and Transfer Form (though the latter is needed for completion more than at the point of exchange), confirmation that the client has approved the completion statement, an agreed completion date, deposit funds and confirmation that buildings insurance is in place.

It is important to note that standard practice usually dictates that 10% of the purchase price of the property acts as a deposit on exchange; furthermore, a Solicitor will require buildings insurance to be in place before they are able to proceed to exchange of Contracts – your insurance cover note should have your lender noted as an interested party.

Each lender will require a period of notice from receiving the certificate of title to releasing the funds which can be up to 10 working days (although usually 5 working days). This can sometimes lead to a delay in the exchange process as if a Solicitor is giving the lender less than their required period of notice they will need to obtain written confirmation from the lender that the mortgage advance will be released on the date of completion before committing you to exchange Contracts.

It is important to note that your Solicitor is only able to release the mortgage funds on the completion date if they hold sufficient funds to complete the purchase of the property, pay all stamp duty land tax and registration fees. This will mean that although after completion your Solicitor has 30 days to submit to the Inland Revenue the duty payable they will require you prior to completion to ensure they would sufficient cleared funds to enable them to do so. 

Article written by Charlotte Ribbons Trainee Solicitor 


MJP Conveyancing are solicitors who provide residential conveyancing 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

Monday 15 September 2014

Mortgage Valuation Report

Your solicitor may ask to have sight of the valuation report used by your lender to assess your eligibility for a mortgage. In this article I look to explain why your solicitor needs to see a copy of the valuation. 

The CML handbook ( which governs your solicitors relationship with your lender )  requires  your solicitor to check the property valuation report. 

Your lender may not have  provided your solicitor with a copy of this document and because of this your solicitor will seek from you a copy of the valuation report which should have been sent to you direct.

Why does  your solicitor need to see this particular document?

Your solicitor must check that the correct property has been valued (by checking the address on the valuation against that on the contract or title) and that any assumptions made by the valuer, such as tenure, restrictions on use, availability of parking etc are correct.

Your solicitor must report any errors or omissions to the lender so that they can ask the valuer whether the valuation needs to be revised as a result of them. 

Even if you have provided your solicitor with a survey/homebuyers report  your solicitor will not be able to discharge his duty to the lender without sight of the valuation report. 

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

Wednesday 18 April 2012

Why moving home with a mortgage will cost more and take longer

Why do some mortgage companies insist you go to one solicitor for your mortgage and a different one for your purchase?

For many years one solicitor would act for both you and the lender because in the main your respective interests would be the similar.    You both wish to purchase a property without any adverse legal consequences.   This is known as a “joint representation” transaction.

The benefit of this is that providing your solicitor was on the lender’s general panel one overall fee would be charged.

However, some mortgage lenders in response to increasing concerns with levels of mortgage fraud and poor conveyancing practice have decided to limit the number of firms that can act on their behalf.

This “separate representation” approach means the lender will appoint a solicitor to act on their behalf and you are able to instruct your own solicitor.   Generally there is no restriction on which firm you choose providing they are on the lender’s general conveyancing panel.  

However there is one lender namely HSBC which has through charging extra legal fees made it very difficult for you to exercise a free choice.  

If you are involved in a transaction where you have two firms of solicitors acting this can often cause delay because your solicitor will not be able to exchange contracts on your behalf until the lender’s solicitor has confirmed approval.

The likelihood is that separate representation is likely to figure more in the future with the consequence of  adding extra expense and time to the  already slow and stressful process of moving home.  

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

Featured post

If it's not broken don't fix it