The issues around conveyancing panels are complex, but can be boiled down to the fact that there is an inherent conflict of interest in a solicitor acting for both the mortgage lender and the borrower in putting a mortgage security (legal charge) in place over the borrower’s home. For a long time the Law Societies in both Scotland and in England and Wales have recognised the efficiency and cost savings involved in one solicitor acting for both lender and borrower in a residential conveyancing transaction – each affording an exemption from rules otherwise prohibiting the solicitor from acting for both parties. But things are now changing.
The credit crunch and the subsequent malaise in the housing market in the UK over the last few years has had mortgage lenders examining their non-performing mortgage cases for any evidence of fraud, or of “negligence” by the solicitor in failing to exercise their duty of care in relation to the creation of the mortgage security. Any failure by the solicitor to comply with the letter of their mortgage instructions – typically based on the lenders’ handbook of the Council of Mortgage Lenders (“CML”) – is being pounced on.
The feeling from lenders, and backed by the CML, is that for too long solicitors have concentrated on their duty of care to their purchasing client, and have paid scant attention to the duty they owe to the lender, whom they conveniently forget is also their client. While a purchaser may be willing to “take a view” on, for example, the absence of documentation for alterations to the property, often the views of the lender are not sought.
From the solicitors’ point of view, they have been effectively subsidising the lender’s legal costs by subsuming the cost of dealing with the mortgage security within their own fees for handling the purchase. They are on the sharp end of the purchaser’s moans and groans about the level of legal fees, while the lender’s legal costs are being masked. Too often when they report matters to the lender they being are asked to “use their professional judgement” in deciding whether the matter might adversely affect the lender’s interest – in other words passing the buck straight back to the solicitor.
All the signs are pointing to the status quo no longer being sustainable beyond the immediate term. Here are some:
- lenders decimating their conveyancing panels, with one major banking group slashing their UK panel to 40 or so firms and charging their customers a fee if they choose to use a firm that is not on their panel;
- the removal of “dormant” firms from panels;
- threats (in Scotland) of firms being removed from panels if they do not use the Registers of Scotland’s Automated Registration of Title to Land (“ARTL”) system for relevant cases;
- solicitor firms being charged an annual administration fee to remain on a lender’s conveyancing panel; and
- the development by the CML of a new set of lenders’ handbook instructions for England and Wales to deal with the situation where the lender instructs a solicitor other than the one acting for the purchaser, with a Scottish equivalent to follow.
Perhaps the most concerning development is a recent solicitor disciplinary case in Scotland where the Law Society has prosecuted a solicitor for repeated failure to comply with the CML lenders’ handbook. While some of the failures cannot and should not be forgiven, the clear message from the Law Society is that its auditors will examine the minutiae of a solicitor’s purchase file for compliance with the CML lenders’ handbook. They will report and potentially act on any non-compliance they discover, insignificant or otherwise, irrespective of whether there has been any fraudulent or otherwise criminal activity on the part of the solicitor, and irrespective of the presence or absence of a complaint by the lender.
Solicitors in Scotland are already asking themselves whether it is worth all the hassle. The status quo has to change, and the likely outcome will involve purchasing clients paying fees to two firms of solicitors, and more huffing and puffing.