Thursday, 31 January 2013

An end to 'free' complaints

Complaints are about to become a lot more expensive!  With margins cut to the bone when it comes to conveyancing changes the Legal Ombudsman’s new charging powers may well tip some firms over the edge. From tomorrow all complaints it investigates will incur a £400 case fee, but if a firm follows a reasonable first tier complaints process they may be eligible for the case fee waiver.

The following revisions also come into effect tomorrow intended to help the Legal Ombudsman respond to a developing legal services market:

  • Financial limits will increase from £30,000 to £50,000
  • Time limits for accepting a complaint will increase to six years from the date of act/omission and three years from the date the complainant should reasonably have known there were grounds for complaint. These time limits will be extended gradually from 6 October 2010 – the date LeO opened for business. However, the Ombudsman will continue to accept complaints about issues that happened before 6 Oct 2010 if the complainant only became aware of it after this date.
  • The Ombudsman will be able to accept complaints from prospective customers who could reasonably have expected to receive a service or who were unreasonably offered a service they did not want.

The Ombudsman does not anticipate that changes will substantially add to the 75,000-80,000 contacts it receives each year; however, it does expect around a 10% increase in the proportion of contacts which will fall within its eligibility criteria. This will inevitably increase the number of full investigations that the organisation carries out.

Checks for conveyancers when dealing with Non‐Authorised Persons

Coming across non-authorised persons is rare in conveyancing but it does happen. I personally came across it on two occasions over a 15 year period. On both occasions I looked up the regulations but, given the serious implications of not following the right steps I made sure that I was in touch with my regulator throughout.

The first thing you should do (and arguably you should do this on all cases) is check on the Law Society, CLC, SRA sites or call them to see whether a person is an Authorised Person entitled to provide reserved instrument activities, as required by paragraphs A3.2 and B3.2 of the CML Handbook, or is otherwise an Exempt Person (schedule 3 2007 Act).

If you are unsuccessful at obtaining that confirmation you should immediately:‐
(a) Write to the Non‐Authorised Person:‐

  • asking for an explanation why the prohibition under s.14‐16 2007 Act does not apply to them; and
  • stating that in the absence of such explanation you cannot enter into any dealings with him or her unless there is clear evidence that no offenses will be committed. An example of clear evidence would be a letter from an Authorised Person confirming that he will prepare the relevant documents; 
(b) Write to your own clients explaining why you can not deal with the Non‐Authorised Person unless clear evidence is forthcoming. This needs to be done delicately.

Where you are acting for the Buyer you should consider the following and, if appropriate, amend the contract:‐

(a) replies to the Property Information forms and all other preliminary enquiries and requisitions should be signed by the seller;
(b) the deposit must be paid to your firm as stakeholder. If the vendor will not agree to this, it may be possible to agree to hold the deposit in a deposit account in the joint names of you and the seller;
(c) either the vendor must attend your offices personally at completion, or an authority must be handed over on completion signed by the seller for the purchase money to be paid to his agent. The reason for this is that the protection provided by s. 69 Law of Property Act 1925 only applies when a document containing a receipt for purchase money is handed over by a Recognised Body or solicitor, or the seller himself;
(d) deeds and keys are given to the person entitled to receive them (the buyer). If an authority on behalf of the buyer is offered to you, it is for you to decide whether or not to accept it, bearing in mind that no authority, however expressed, can be irrevocable;
(e) The purchase money, including any deposit, is paid either to the seller or to the seller’s properly authorised agent.

When acting for the Lender you should consider the following:

(a) You are not obliged to undertake work which would normally be carried out by the borrower’s
legal adviser (e.g.  preparing and drafting the instrument of transfer). However, it is essential to the lender client that good title is transferred to the borrower.
(b) Compliance with s. 69 Law of Property Act 1925 may mean that you require either that the borrower to attend personally on completion, or that a signed authority from the borrower in favour of his agent is received on completion.

It is important to carry out the right steps when dealing with a non-authorised person as the implications of getting wrong are very serious :

It is a criminal  offence for a person who is not an Authorised Person and is not an Exempt Person to carry out conveyancing.

Where a Non‐Authorised Person carries out conveyancing, the Non‐Authorised Person’s client is likely to be guilty of aiding and abetting the offence. The Authorised Person acting for the other party (which could be you)  may also be guilty of procuring the commission of an offence by inviting or urging the Non‐Authorised Person to provide a draft contract or transfer or to progress the transaction.

Finally, and forgive me for stating the obvious here: an undertaking offered by a Non‐Authorised Person should not generally be accepted as it is not enforceable in the same way as an undertaking given by you or by another Authorised Person.

Wednesday, 30 January 2013

Shedding light on the meaining of a tenancy deposit

Conveyancing lawyers will no doubt be aware of the pitfalls in a landlord failing to comply with the requirements relating to tenancy deposits – i.e. the ability of a tenant to bring a claim for the value of the deposit, plus compensation of between one and three times the deposit.

The question as to what constitutes a rent deposit however remains something of a grey area. The Court of Appeal should shed some light in the case of Johnson v Old due before the Court of Appeal in March. The effect of the decision will be significant in tenancy deposit protection terms and could impact the way they future tenancy agreements are drafted.

In Johnson v Old a six months rent in advance had been paid, along with a separate sum which was taken as a deposit and duly protected.

Once the landlord sought possession of the property, the tenant argued that only part of the deposit had been registered as the rent taken in advance had constituted a deposit which had not been protected, and that the Section 21 Notice was therefore invalid.
At the hearing just over a year ago at Brighton County Court, which held that the advance rent was a deposit and that the Section 21 notice was invalid. Deputy District Judge Collins dismissed the landlord’s claim for possession and ordered the landlord to pay the tenant’s costs.
The judgment was overturned on an appeal by a Circuit Judge who decided that 6 months rent in advance did not constitute a deposit. As a result, possession and costs were awarded to the landlord. One set of facts, two Judges, two diametrically opposed judgments.

My view has always been that rent taken in advance is not a deposit. Watch this space to see what is reported in March.

Monday, 28 January 2013

Halifax Part 2 changes requirements relating to delayed completion

Those on the the Halifax solicitors panel need to be aware that Halifax has made important changes in relation to section 10.7 of their CML handbook Part 2 conditions. The requirements set out how quickly a conveyancing solicitor should return the the mortgage advance in situations where there is a delayed completion. The time frame to return monies depends on the account/roll number and can vary between 1 working day or 5 working days. Please click here to see the change.

What do Santander propose to do with Licensed Conveyancers?

A significant proportion of the conveyancing industry risk being removed from Santander’s conveyancing panel at the end of March unless they obtain the Law Society’s Conveyancing Quality Scheme accreditation.

A Santander spokesman said: ‘As part of the bank’s efforts to manage risks associated with mortgage lending, we are committed to managing our panel of conveyancing providers. CQS provides a means of maintaining choice and high standards for our customers while addressing those risks,’ he said.

This does beg the question as to what is happening with licensed conveyancers who can not apply to be CQS accredited. If Santander allow licensed conveyancers to automatically be on their panel this could result in solicitors converting to licensed conveyancers by way of an ABS - directly or indirectly through an ABS.

Breach of trust claims against conveyancing solicitors : A moving target

In 2013 conveyancers are likely to witness the continuing trend for lenders to embrace breach of trust arguments rather than traditional negligence claims against conveyancing lawyers. Call me a ‘conspiracy theorist’ but I suspect that this approach has something to do with lenders’ fear of their previous risky lending practices coming back to the haunt them if the court finds contributory negligence.

As long as the bank can claim that the transaction has not completed there are significant advantages for a lender in seeking to reconstitute the trust fund rather than to bring a contractual or tortious claim for damages.

What can the solicitor do when faced with such a challenge? Section 61 enables the court to relieve the trustee, wholly or partly, from personal liability for a breach of trust if he or she “has acted honestly and reasonably, and ought fairly to be excused for the breach of trust.”  

For the conveyancer defending a lender claim is the relief available under section 61 was fast becoming mythical especially after the Uddin case. The tide has somewhat turned as a result of Nationwide v Davisons [2012], where the court made it clear that relief available under section 61 is a reality .

It is important to note that the Court of Appeal decision in the Davisons case does does not establish new breach of trust principles, the Court of Appeal decision reinforces the decision in Lloyds Bank v Markandan & Uddin [2012] that a solicitor will have committed a breach of trust in parting with loan money prior to completion of the purchase. The major relief for conveyancing lawyers though is notwithstanding the contractual term in the CML Handbook (para 5.8) that the solicitor will obtain a fully enforceable first legal charge on completion, the Court of Appeal decision confirms that solicitors do not warrant or guarantee this. They are only required to exercise reasonable skill and care to redeem all existing charges and obtain a fully enforceable first legal charge. This decision now brings back to sharper focus that question ‘what determines reasonableness’?

Whether a court will find that a solicitor has acted reasonably will still depend on the facts of each case. I would also posit that circumstances have already changed that mean that in a similar situation in the future the court may not necessarily find in favor of the conveyancer. Here are a few points to consider :

  • Since the Davisons case came to light the SRA have been fairly vocal about lawyers not relying on the SRA search tool to determine if a solicitor in legitimate. The Davisons case in and of itself has highlighted the need to be extra vigilant in this area.  
  • New search tools and software such as Lawyer Checker and COMPLETIONmonitor are becoming increasingly popular with conveyancers. There will be a tipping point whereby if you do not carry out additional checks as to the legitimacy of a law firm it will be very difficult to satisfy the reasonable test.
  • Nostradamus would not have a hard time predicting a specific Law Society Warning Card relating to dealing with rogue solicitors which indirectly will set the bar higher when it comes to the reasonable test. The cynic in me thinks that any such warning card is as much about deflecting liability off of the the ‘Find a Solicitor’ search tool rather than protecting lawyers.
  • Look out for lenders setting out levels of investigation they expect a lawyer to carry out as part of the CML Handbook provisions. If I was a betting man my money would be on Nationwide being the first to change their Part 2 requirements in this regard.

Sunday, 27 January 2013

Improving conveyancing risk through simplest of methods: the checklist

Can any conveyancer with more than 10 years experience challenge the notion that over the last decade conveyancing has become increasingly complex with more requirements being heaped onto the poor conveyancing lawyer? Examples of additional considerations including AML regulations, or new searches to be aware of such as chancel, environmental or flood. Add to the mix that there are now 150 plus lenders all with different requirements who make changes with increasing regularity. It’s no small wonder that over 50% of claims against solicitors are in the field of property law.

Underwriters acknowledge that the vast majority of claims against conveyancing lawyers are down to failures of processes or systems rather than due to problems with legal advice. Some would estimated that 90% are not not down to legal advice.

Having spoken at length to insurers about their data - the underlying causes of claims - seems to have changed little over several years.

Overwhelming torrents of details and demands are by no means unique to conveyancing lawyers. Many jobs involve a combination of process, specialist skills and the exercise of judgement. Dr Gawande in his book The Checklist Manifesto explains how he discovered the power of the checklist in his research into aviation, and he extends his inquiry to architecture, finance, and yes.....the legal sector.

However, for some lawyers, applying something as a humble as checklists to the execution of legal work feels alien – it seems to undercut professional competence and discretion, the sense that each matter is unique and needs a response which no checklist could accommodate. In the current climate of the apparent threat to the industry by ABSs it also suggests commoditization which may not fit with a firm’s profile. Nevertheless, the most competent solicitors - and the most likely to comply in a world of creeping regulation -  are those lawyers who appreciate the importance of organization and pre-planning through technologically sophisticated checklists.

Gawande makes a distinction between errors of ignorance (mistakes we make because we don’t know enough), and errors of ineptitude (mistakes we made because we don’t make proper use of what we know). Most errors in the field of conveyancing happen in the second of these errors such as missing a second charge or missing a deadline or expiry date. It’s just too easy for an otherwise competent solicitor to miss a step, or forget to ask a key question or, miss a lender requirement. As is the case with pilots, surgeons and the people who build skyscrapers conveyancers need checklists–literally–written (on-line or otherwise) guides that walk them through the key steps in any complex transaction.

Many conveyancng solicitors resist checklists because they want to believe our profession is as much an art as a science. When Gawande surveyed members of the staff at eight hospitals about a checklist developed by his research team that nearly halved the number of surgical deaths, 20 percent said they thought it wasn’t easy to use and did not improve safety. But when asked whether they would want the checklist used if they were having an operation, 93 percent said yes

My main point is simple: no matter how expert you may be, well-designed checklists brings consistency and improves outcomes for everyone, even the experienced lawyer. They provide a kind of cognitive net. They catch mental flaws. The end result – more productive fee-earning time.

I will end on this last thought. Today, insurers in the USA are rewarding doctors for using checklists to treat such conditions as heart failure and pneumonia. Perhaps in the future solicitors UK PI insurers will do the same for conveyancing.

Friday, 25 January 2013

The best best bad plan that we got

I enjoyed going to the cinema last Saturday night to see a film called ARGO. This Oscar nominated film tells the based-on-true-life tale of how CIA agent Tony Mendez (Ben Affleck) extracted six American diplomats from the Canadian Embassy in Tehran. Mendez’s plan to get them out is to create cover identities for the diplomats as a film crew for an in-production science fiction film.

There are a myriads of problems with this plan, not the least of which is that it depends on putting a fake science fiction film into production in order to fool the Iranian security forces who are scouring the capital to capture the stray Americans. The film gets it biggest laugh from the discomfort this plan raises in the Washington bureaucrats and the open-minded embrace from Mendez’s two Hollywood partners.

Once inside the meeting with Vice President, the politician is skeptical and openly wonders if they don’t have better a better, to which Mendez replies, “This is the best bad plan we’ve got.”

It got me thinking about COLPs (sad but true). Even if you have a poor Compliance Plan............a bad plan is better than none at all.

Tuesday, 15 January 2013

Predictions for Conveyancing in 2013

Predictions for Conveyancing in 2013

Looking back at 2012 it was quite an eventful year, although, that being said it was simply keeping apace with 2011.

So what might 2013 have in store for the conveyancing fraternity? Here are my top predictions:

  1. The Law Society and CQS can look towards 2013 with a degree of optimism. A slow but steady stream of lenders making CQS a prerequisite to be on their panel, will result in an increasing number of firms viewing CQS as a necessary evil. The level of CQS firms will likely grow to over 4000 meaning that the majority of firms conducting conveyancing will be accredited.
  2. As the popularity of CQS grows it will face increased criticism from lenders unless the scheme sharpens it’s teeth and starts auditing firms. During the latter part of 2012 lenders were becoming increasingly vocal in their questioning as to the extent to which CQS monitors firms. CQS are aware of this issue of credibility so expect some attempt to address this via the introduction of auditing technology or standardized processes (such as a centralised  transaction portal).
  3. CQS’s gain is the Licensed Conveyancer’s loss. If lenders follow Santander and HSBC’s requirement for a firm to be CQS accredited and licensed conveyancers may find themselves on the sidelines. The Society for Licensed conveyancers are going to have to show value for their membership fee SLC has to launch a credible alternative to CQS. There was talk in November of 2011 of the SLC having had good feedback from lenders to their quality scheme which was supposed to have launched in Spring 2012.
  4. Despite the difficult financial climate this year will see law firms significantly increase their budget for risk management and compliance technology. Over the last 10 years a firm’s technology spend has mainly focused on improving efficiencies such as case management systems. The driver for improved processes was necessitated due to the increased commoditization of legal services together with it’s associated lower margins. With ‘compliance’ being the buzzword for 2013 expect the technology spend to shift towards compliance software.
  5. 2013 will see the continuation alternative business structures being created but there will be very little impact on the conveyancing the market. Conveyancing has largely remained untouched. Don't expect to see AA, Tesco or Co-Op on an employment drive to conduct conveyancing. Whilst they may panel out work there remains little chance of them actually conducting conveyancing themselves not least because there is hardly any money to be made. There are many other reasons for this area of law being left alone but let’s leave that to a separate article.
  6. Although the recent Court of Appeal decision affecting Davisons Solicitors is welcome news to conveyancing solicitors there will clearly be a backlash by lenders this year. By way of quick reminder about this case. The High Court had previously held that Davisons Solicitors of Birmingham had to repay £184,500 to Nationwide Building Society ruling that the firm caught up in a mortgage fraud was liable for the loss after it was tricked by a bogus practice which was SRA registered. The appeal court stated that while the firm had committed a breach of trust in releasing funds before obtaining a fully enforceable legal charge, it should be excused and relieved of liability for it.

As a result of this reversal one can expect changes to be made to the CML Handbook particularly relating to the obligations to investigate the legitimacy of the other lawyers on a transaction. To track changes to lender’s requirements consider subscribing to the LENDERmonitor Notification Service for free.

  1. As already mentioned ‘compliance’ is going to be the main area of concern for almost all solicitors firms until the mist shrouding the new regulatory regime disperses. Firms who conduct conveyancing are more likely to have an intrusive relationship with their regulator. I anticipate the accusation of ‘disproportionate response’ to  be levied at the SRA fairly frequently in the last quarter of 2013. It’s no longer enough for a solicitors focus on compliance to be limited to occasional glance at the SRA handbook sitting on the shelf gathering dust in his or her office.
  2. This year is likely to witness the continuance of the trend for lenders to embrace breach of trust arguments rather than traditional negligence claims against conveyancing lawyers. Call me a ‘conspiracy theorist’ but I suspect that this approach has something to do with lenders’ fear of their previous risky lending practices coming back to the haunt them if the court finds contributory negligence.

Monday, 14 January 2013

What conveyancers can learn from Van Halen

It's one of those rock 'n' roll legends that turns out to be true: in the 80s rock band Van Halen famously (or infamously) had a rider in its contract which required promoters to provide the band a large number of M&Ms in the dressing room. But brown M&Ms were forbidden. If the band found a single brown M&M, the promoter forfeited his earnings. Why?

It was actually a clever test. Van Halen stage shows were elaborate productions. To get ready, a promoter had follow a set of lengthy, complex instructions provided in the contract. The brown M&M provision was buried, at random, among these instructions. If the band members went backstage and found brown M&Ms, that meant that the promoter had not read the instructions and there were potential problems with the show. Any mistakes could be life-threatening. In Colorado, the band found the local promoters had failed to read the weight requirements and the staging would have fallen through the arena.

When you think about it, that's a nearly costless way to check for quality control.

As  coneveyancers we live in a new environment of evidential compliance and risk management. It occurred to me that the CML handbook is analogous to the complex instructions that Van Halen issued. No one would argue against the assertion that lender requirements are becoming increasingly complex and difficult to follow. In 2013 over 1200 Part 2 sections  were changed.

In recent years it is not uncommon for Lenders to shoehorn requirements into seemingly unrelated section of the Handbook. By way of example  Part 2 for the CML Handbook Section 5.13.1 reads “If different from 1.11, contact point if borrower is not providing balance of price from funds/proposing to give second charge”

One would expect this to be a simple answer of either stating that the address is the same as Paragraph 1.11 or, alternatively specify the different address.  It is a dangerous game to assume the content of a Part 2.  For example Leeds Building Society’s response is as follows : ‘Mortgage Lending Department. If the balance of the purchase price is being paid wholly or in part by anyone other than the borrower, you must provide us with a declaration of this amount, that such amount is not repayable and that the party providing this amount will not acquire an interest in the property…..’

The significant benefit that Van Halen had about their quality control plan was that it was very apparent when the brown M&Ms were not in the bowl. With the example above (as is the case with many of the provisions buried within the Part 2’s) a Lender would have to look at the file – which could be years later- to see if the conveyance had complied with their requirements.  Yet there are much easier tests at a lender’s disposal.

As pressure bears upon Lenders to justify their panel selection it is easy for them conduct a relatively low cost and simple tests to examine whether a firm complies with CML Part 2 requirements. Here are a number of examples of the equivalent of the brown M&M test:

  • Lenders such as Santander who have specific requirements to submit a form CH2 at the Land Registry can easily request the Land Registry a report on specific firms to see if the appropriate entry on the title exists.
  • Approximately 50% of Lenders now require the Land Registry to retain the original mortgage deed. It is likely that there are still lawyers who send certified copies of the mortgage deed with the original mortgage deed to the Land Registry. It is very easy for a lender to make a request and find out from the Land Registry if they are holding original mortgage deeds from specific law firms

It’s hard to counter the argument that a lender can raise when they state that as a law firm if you can't submit CH2s or send the correct documents to the Land Registry how confident can they be that you are complying with the rest of their requirement. Unless lenders put their faith in CQS as determination of law firm quality,lenders may take matters into to their own hands to start scoring law firms. It is possible that lenders can learn as lesson from Van Halen so do look out for that particular tune - even if you don't like heavy metal.

The LENDERmonitor Notification Service has sends-mail updates of lender requirements to thousands of lawyers across England and Wales. LENDERmonitor has been operating for three years and continues to be promoted on the CML website and by insurers. The cost of the service varies between £20 and £150 plus VAT per month depending on the size of firm. Inside Conveyancing are delighted to be able to offer it’s readers the service free of charge. There is absolutely no catch in signing up to the Notification Service, you can cancel at any time. You will not be charged at all for this service. To register click here 

Sunday, 13 January 2013

The paradox of lender prejudice against sole practitioners

The most common reason given by lenders to remove sole practitioners or high street practices from their panel is that they are compelled to take a more restrictive approach to their selection process all in the name of their ongoing battle to combat mortgage fraud. 

The irony of the aforementioned rationale is that the exclusion of the high street solicitor obstructs the ideal of fraud prevention because the solicitor's personal knowledge of his client is the best defense against the identity deception which enables fraud money laundering to be perpetrated.  The commoditisation of conveyancing services around a small number of big conveyancing factories seems likely to impersonalise the operation and to promote the opportunity for mortgage fraud. In the vast majority of conveyancing transactions conducted by ‘national’ firms there no opportunity for face to face meetings between client and solicitor and a clever fraudster with resources can easily provide all the passports, driving licences and utility statements that his or her purposes require. The faceless dealing with clients is not only acceptable, it is also becoming the norm due to the immediate advantages of speed and economy.  Also, even when there are no villains involved, one has to consider how many problem files achieved that status in conjunction with and possibly because of there having been no or insufficient personal contact with the client for all necessary issues to be addressed.

Just in case a Lender reads this article here are a few points and questions for them to think about :

  1. Feedback and data from smaller firms indicates that they meet 98% of their conveyancing clients.
  2. Larger conveyancing practices (and I was previously involved with one) would see about 10% of their clients
  3. And here is the big one....How many of the mortgage frauds that took place in the last 5 years did the lawyer meet the client face-to face ?

If mortgage fraud was of such concern surely it’s time for the CML handbook to require every lawyer to meet their client face to face. Perhaps we need to revert back to the idea that mortgage deeds needed to be witnessed. Call me a skeptic but I fear that such a change is unlikely to happen as the large firms lobby would be up in arms. In time, due to increased regulation and technology, there will be data collected that overwhelmingly points to the need to meet all clients. The shame is that by the time lenders realise this there may be very few small firms around. 

Mr and Mrs Conveyancing Client 'Please Complain' !

Acquiring and processing client feedback is a choice for many conveyancing firms but should you be inviting criticism?

I believe the answer is "of course." While the reasons for not inviting criticism might be of interest in a high-turnover business, it is difficult to imagine a cogent argument for not keeping clients happy (including finding out what you can do to improve) in the conveyancing business.

Here are some of the reasons to hide from client feedback:

  • Inviting disgruntled clients to call or write to someone who will actually take action will encourage them to become more disgruntled. After-all a complaint to the LeO will now result in an automatic penalty.  If no one is listening, the thinking goes, then perhaps the annoyed client will quietly go away. The home buying process is known to be a stressful process perhaps you should just let the clients put the whole process behind them rather than stoke the fire.
  • It is very expensive to listen to squeaky wheels, particularly if you have someone in authority (as you would do if it is the COLP) actually listening and responding.
  • You might believe that the noisy minority don't share the objectives of the rest of your client base, particularly the higher-paying and silent majority.

On the other hand, you might consider that :

  • Client feedback in real time is a competitive advantage which will help you grow.
  • That new entrants into the market, particularly ABS’s will be obtaining feedback and will therefore be better informed.
  • That assuaging an unhappy customer now is worth way more than negative word of mouth later or permanent negative mark on the internet if the client registers their complaint on-line.
  • By undertaking and analysing satisfaction data and acting upon the outcomes of those analyses the firm is able to evidence to the SRA that is a firm building a sound business.

Whichever strategy you choose, you should choose. Don’t sit on the fence pretending as you get none of the benefits of either plan.

If you want your conveyancing clients to speak up, be clear and mean it.