Monday, 5 December 2016

November 2016 Overview - CML Handbook and BSA Mortgage Instruction Changes

Key Statistics for November 2016 (England & Wales):
  • 35 lenders made changes to their instructions
  • 130 sections were changed by lenders
  • 5 lenders made changes to their minimum lease term requirements
  • 6 lenders made changes on more than one occasion in November
  • 3 lenders set out a disclosure obligation relating to Japanese knotweed
  • One lender set out new (and daunting) obligations in relation to independent advice for joint borrowers
For more information click here

Thursday, 1 December 2016

HSBC Introduces Independent Advice Requirements for 'Unequal' Borrowers

In a recent change to their CML Handbook Part 2 requirements, HSBC have imposed new obligations on their conveyancing panel when it comes to advising joint borrowers.

One might expect Section 8.1 (‘Does the lender allow me to advise any of the specified third parties?’) to focus solely on 3rd parties. Not so in the case of HSBC who adjusted their requirements to read:

Yes, provided that you are satisfied that you do not have any conflict of interest which prevents you advising the third party fully. If this is not the case you must arrange for them to see an independent conveyancer.

Direct charges - We require any borrower who is a legal owner of the property but who will not personally benefit from the loan either at all or equally with the other borrowers to obtain Independent Legal Advice where either the amount or portion of the loan from which they will not benefit exceeds £5,000.

Indirect charges – Where a Mortgagor of the property is not a borrower, we require that person to obtain Independent Legal Advice.

All cases - You must strongly recommend to any person intending to execute a Letter of Consent and Postponement by Deed to the mortgage that they obtain Independent Legal Advice

I am particularly surprised with the wording ‘We require any borrower who is a legal owner of the property but who will not personally benefit from the loan either at all or equally with the other borrowers to obtain Independent Legal Advice where either the amount or portion of the loan from which they will not benefit exceeds £5,000’.

It would appear that when acting jointly for HSBC and borrowers, it is necessary for any borrower, where the inequality of contributions is £5000 or more, to seek independent legal advice.

There is nothing new about the particular issue in that lawyers encounter situations where couples buying homes are contributing in unequal shares. Lawyers often advise one of the joint owners (who may not regard the mortgage as being anything to do with them at all) of their personal liability to the lender in any event. I suspect that lawyers do not generally regard such situations as demanding independent legal advice for the party who was not benefiting from the mortgage, but would always make sure that there was careful, written advice to the effect that both parties are equally liable to the lender.

Albeit that many lawyers may recommend that one of the joint owners with differing contribution (or a non-benefiting borrower) to take independent advice, this new situation is distinct for the following reasons :

  • Although it is best practice to recommend that borrower with unequal contributions take independent advice, in this HSBC situation the firm's liability in this area extends to the lender rather than being limited to the borrower clients
  • Outside of the HSBC situation one might recommend that one of borrowers take independent advice (and you may have something countersigned by the client acknowledging that advice). I suspect that many firms would feel as long as they recommended that  independent advice be taken that would suffice. In this situation HSBC require independent advice be obtained.
  • I have my doubts whether lawyers concern oneself with unequal contributions on a remortgage but this clause obliges the firm to go back to the original contributions.

Without wishing to overplay the impact of the change, I am concerned that the conveyancing lawyer acting is now be placed under an obligation to make even more detailed enquiries as to the relative contributions of joint owners. Hitherto, the very good lawyers would be careful in their advice about the ways in which property can be jointly owned, but have put the onus on the borrower clients to inform them if they feel that their relative contributions to the purchase price warrant something like a tenancy in common in unequal shares. I suspect that many lawyers had not considered it to be their duty to carry out a detailed investigation as to the contributions, but rather to alert joint owners to the options.

To see the latest CML Handbook Part 2 changes please click here

Wednesday, 30 November 2016

CML Handbook Changes: Tis the Season for Melancholy

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If a conveyancing lawyer were to identify the period where they were under the most pressure it would be the last quarter of the year,being the lead-up to the seasonal holidays.
Buyers and sellers agreeing a house sale or purchase almost invariably focus on completing the deal ahead of the Christmas break. Home movers, estate agents and brokers will be emailing and calling more than any other time of the year to ensure that deadlines are met. Many lawyers have a voice in their head saying ‘if only I could be left alone to get on with the work....’
The last thing a lawyer needs is a client changing their instructions frequently during this frenetic period. As my mum used to say ‘ I need that like a hole in the head’. Yet for the last few years lenders - the most common client for many a property lawyer - pick this time of year to make their most frequent changes.
The proof is in the Christmas pudding … take a look at these charts.

Friday, 18 November 2016

Japanese Knotweed : Knot Disclosing to Lenders

This week three lenders followed HSBC's lead* in using the CML Handbook Part 2 to set out their conveyancing instructions relating to Japanese Knotweed.

What should otherwise be a simple ”yes-or no” to question 5.4.4  instead stands as just the latest example of how lenders can utilise Part 2 of the CML Handbook to heap more complex and onerous disclosure obligations on their conveyancing panel lawyers.

But, since nothing is ever simple when it comes to CML Handbook Part 2 compliance, the question “Does the lender want to receive environmental or contaminated land reports?” is the jumping off point for lenders to shoehorn in obligations that encroach upon what would normally expect of a surveyor.

In-fact up until recently the answer that Coventry Building Society, Godiva Mortgages and ITL gave to the aforementioned question about sending reports to a lander was a simple 'No'

These lenders have now changed their answer to :

Generally no.

In relation to Japanese Knotweed:

You do not need to make the society aware of Japanese Knotweed in the following categories

1. Japanese Knotweed was not seen on this property, but it can be seen on a neighbouring property or land where it was more than 7 metres away from the boundary.
2. Japanese Knotweed was not seen within the boundaries of this property, but it was seen on a neighbouring property or land. Here, it was within 7 metres of the boundary, but more than 7 metres away from habitable spaces, conservatory and/or garage of the subject property.

You will need to advise the society if you become aware of Japanese Knotweed in the following categories, you will need to provide specific details of which category the Japanese Knotweed falls into, the examples listed below are likely to be unacceptable to us

3. Although Japanese Knotweed is present within the boundaries of the property, it is more than 7 metres from a habitable space, conservatory, and/or garage. If there is damage to outbuildings, associated structures, paths and boundary walls and fences, it is minor.
4. Japanese Knotweed is within 7 metres of a habitable space, conservatory and/or garage, either within the boundaries of this property or in a neighbouring property or space and /or Japanese Knotweed is causing serious damage to outbuildings, associated structures, drains, paths, boundary walls and fences and so on.

Confused by the said wording? I too was tied up in knots.

*March 2004

Wednesday, 16 November 2016

Finally...good news for conveyancing lawyers

I can understand why a conveyancing lawyer might have a persecution complex. During the last twenty years the industry has been subjected to ever more risks at a time when fees are being driven down. As if to add salt into the wound, it is often to lawyers who are the first port of all when it come to claiming compensation when things go wrong.

In the last couple of years there has been a dramatic increase in occurrences of online fraud cases affecting conveyancing – sometimes resulting in house buyers losing hundreds of thousands of pounds.

Whether you call it ‘cyber crime’ or ‘Friday afternoon fraud’ this is where fraudsters hack into the email accounts of either the client or solicitor, recognising the fact that many solicitors now use email as the preferred method of communication with clients. The most common scam sees fake emails sent to either party – the client or solicitor – instructing them to divert large payments to the hacker’s bank account, often during the final stages of a property purchase.

The good news?

A few weeks ago  an important ruling ruling took place which should have positive ramifications for  the conveyancing industry. The financial ombudsman, which settles disputes between customers and financial services firms has told Lloyds Bank to repay £47,508 plus interest to to Mr and Mrs Kelly, a couple who got caught out by a fraud during a conveyancing transaction. Its decision was based on what Lloyds should have known about the fraudsters.

Like many victims before them, the Kellys received, what appeared to be a legitimate email from a hacker who pretended to be their solicitor and requested payment into an alternative account. The Kellys believed they were paying a deposit of £47,508 to their solicitor handling their conveyancing. You guessed it...the money disappeared.

The couple complained to the Lloyd's with whom the fraudsters had set up an account and subsequently took their case to the ombudsman.

In an email to the Kellys with her findings, Sandra Quinn, the ombudsman for banking and credit, said: “As you know this account was newly opened. I can review whether the payment coming into the account was consistent with what [Lloyds] knew and whether it could have done anything. “I believe [Lloyds] had time to be alerted and take some action and there’s no evidence it did.”

Whist it must be recognised that an ombudsman’s ruling does not establish a formal precedent it nevertheless suggest that should have a duty of care in ensuring that a fraudulent’ account is not opened. This decision may well result in PI Insurers facing claims arising from similar fraud to look to the bank where the fraudulent monies was established.

Sting in the tail?

Assuming the courts and the ombudsman adopt the same approach one can be sure that lender’s will not take this lying down.

Lloyds public reaction to the Ombudsman decision was graceful “We would like to apologise for the inconvenience caused to Prof Kelly. We will accept the decision from the ombudsman once it is received and will offer him compensation in line with the ombudsman’s findings.” Chances are that this comment was made through the proverbial ‘gritted teeth’.

The backlash may come swiftly. Lenders could use this as an excuse to further reduce their conveyancing panel. It is almost six years ago to the day since 2500 firms have been axed from Lloyds Banking Group's panel.

The best case scenario is that lenders require law firms to adopt new procedures to reduce the chances of these frauds occurring. For example it might be that the COT will require the lawyer to tick a box acknowledging that they have confirmed their bank account details to the borrower over the phone as well as in writing. The CML Handbook P2 may well be changed to introduce certain protective measures.

Lawyers should expect some some reaction.

Tuesday, 8 November 2016

Kensington Opens Doors to HMOs..But...

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Kensington Mortgages have changed their attitude and CML Handbook instructions relating to houses in multiple occupation. Up until yesterday the lender specified via Part 2 Section 6.6.4 that  it would not lend where the property came within the definition of a house in multiple occupation? 

The new answer to Section 6.6.4 reads:

Yes, on the basis that the property is let on an Assured Shorthold Tenancy and any required local authority licence is in place. Please provide confirmation prior to Completion if the property falls within the definition of a house in multiple occupancy as this facility is only available on specific Buy to Let schemes.

Lawyers on the Kensington Mortgages conveyancing  panel should pay particular attention to the caveat and disclosure obligations. 

Monday, 7 November 2016

Busy October for CML Handbook Changes

October 2016 proved to be a busy October when it came to changes to lenders' Part 2 sections of the CML Handbook. 31 lenders made changes. This compares to 10  lenders in the same month 2015, 17 in 2014 and 24 in 2013.

159 sections were changed with the most top ten most changed sections being :

Times changed
What new home warranty schemes are acceptable to the lender?
If different from 1.11, the contact point if the seller has owned the property for less than 6 months:
What minimum unexpired lease term does the lender accept?
Does the lender lend where the property comes within the definition of a house in multiple occupation?  If yes, what are your requirements?    
Does the lender want to receive environmental or contaminated land reports?
Where should the title deeds and documents be sent?
Which documents must I send after completion?
Does the lender need to be sent the original mortgage deed and/or any other original title documents?
If different from 1.11, contact point if property is let/to be let and to check you lend on buy-to-let:
 Does the lender accept security which comprises one of two leasehold flats in a building where the borrower also owns the freehold reversion of the other flat and the other leaseholder owns the freehold reversion in the borrower's flat? If so, are there any specific requirements?

The more notable changes in October were (in no particular order):

Other lenders who made changes in October include :

Adam & Company
Bank of Cyprus UK
Bank of Ireland (UK) plc
Bank of Ireland as Bank of Ireland Mortgages
Bank of Scotland Beginning A
Bank of Scotland Beginning O
Coutts Finance Co
Darlington Building Society
Godiva Mortgages Ltd
Hampden & Co plc
HSBC Bank plc
Intelligent Finance
ITL Mortgages
Leeds Building Society
Lloyds Bank plc pre fixed 20/40
Lloyds Bank plc pre fixed 50/30/77
Lloyds TSB Scotland plc
Loughborough Building Society
Monmouthshire Building Society
Nationwide Building Society
Precise Mortgages (Charter Court Financial Services Ltd)
The Mortgage Business
Tipton & Coseley Building Society
TSB Bank plc
Vida Homeloans