Is the Law Society looking to cash in on the Balva collapse?

Baron Rothschild, the 18th century British nobleman and member of the Rothschild banking family, is credited with saying, "The time to buy is when there's blood in the streets." He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon.

On 17 June 2013, the Financial and Capital Market Commission (FCMC) decided to withdraw all operating licences issued to Balva and commence the winding-up process by appointing a liquidator. Hundreds of law firms who insured with failed Latvian insurer Balva face being caught in an ‘unrated cycle’ after offers from other unrated insurance providers. Balva are the latest of a number of unrated insurers  who have gone to the wall in the last few years.

In 2009, Quinn Insurance – which was soon to collapse into administration – lost €333m [£282.7m] in the UK alone, prompting it to pull back from solicitors’ PI. And only last year, another PI provider, Gibraltar-based Lemma Europe Insurance Company slipped into liquidation.

With the spotlight on unrated PI insurers I expect that the commercial gurus at the Law Society may consider that the opportunity is ripe to launch a professional indemnity scheme for small firms.

Such a scheme could be pitched at firms from one to four partners, an area considered riskier than large firms,.  The Law Society has warned that such firms were increasingly “turning to unrated insurers”. It would be a perfect opportunity for them  to  cross-sell other Law Society services such as CQS, Lexcel and compliance services in which they have a stake.

The Law Society has recently urged law firms to buy cover from a rated insurer this renewal period.   The Society mentions the “devastating personal consequences” an insolvent insurer can have on partners. And this week it told solicitors it was becoming increasingly concerned about the level of commission paid to insurance brokers.

The Law Society has a history of making such opportunistic commercial moves. The timing of the introduction of CQS was no coincidence. It occurred as soon as lenders started to cull their conveyancing panel and was applied for by most firms as a protective measure to maintain panel status.

Meanwhile the SRA has confirmed that it is considering introducing a financial rating criteria for insurers who write PI policies.  According to policy director Agnieszka Scott, “There have been numerous calls for us to allow rated insurers only, but we have resisted this restriction as it would be an unwarranted barrier to entry into the solicitors PII market. Until now, it would have been disproportionate for us to introduce a financial rating criteria.

“However, in the light of the insolvency of Lemma last year and recent developments with Balva, we decided that we need to look again at the impact of introducing a financial rating criteria,.”

The SRA will make its decision in time for October 2014 renewals.

The danger of double charges

PI insurers are still seeing a significant number of claims relating to mortgage redemption statements.

A leading insurer recently advised me of a case where the solicitor was completing the sale of his clients' property, on which he knew there were two charges. He had obtained statements on each charge, and on the day of completion he asked a junior colleague to phone the bank for a final figure. His colleague only saw one of the two statements on the file, and the solicitor had not warned her that there were two charges. When he was given the redemption figure, he did not check that the figure included both. He paid the bank the amount that his colleague had been told, and paid the balance to his client, you can guess the rest.

To avoid this type of problem you should use a system like COMPLETIONmonitor which can only be signed off by the lawyer. Alternatively, mark the file clearly to show what charges are on a property, together with account numbers. Where possible, get redemption figures in writing from the lender, and always check that all charges have been included. More importantly, do not delegate crucial tasks to a colleague without giving a full explanation of what is needed and without allowing time to check that they have understood your instructions.

Conveycentric on Notice of Imminent CML Handbook Changes

Conveycentric has been notified by the Council of Mortgage Lenders that they intend to publish important amendments to the CML Lender's Handbook for England and Wales on July 8, 2013.  Members and relevant stakeholders consulted on the changes for the new Part 1 question added as 5.20.4, which were made necessary by the Green Deal.  

The specific new Part 1 question states, "Check Part 2 to see whether we require you to disclose the details of any existing Green Deal Plan(s) on a property".  

Simon Seaton, CEO of Conveycentric, commented, "We are grateful to the CML who continue to be very helpful in preparing us for major changes so that we can assist the users of LENDERmonitor and COMPLETIONmonitor.  We will be notifying about 3000 solicitors and conveyancer of lender-specific requirements on July 8th.  We expect amendments to be made to the BSA Mortgage Instructions by October".

LENDERmonitor, supported by the CML, provides conveyancers with a free subscription service that sends out email alerts advising when lenders make  changes to policies.  To sign up of free notifications, click here.

The LENDERmonitor LM04 Policy Search allows conveyancers to establish if there have been any changes to lenders’ policy over a specified date range.  Commenting on the search, the CML say,  “Lenders regularly change their Part 2 policies. There is now a link from the CML Lender Handbook to Conveycentric’s LENDERmonitor from where conveyancers can easily carry out an LM04 Search before submitting their COT to the Lender and ensure that there are no changes to the Policy that may leave them exposed”.

Is the Green Deal a charge against a property?

It is a common misconception amongst the public and conveyancers that the Green Deal creates a legal charge over a property. It does not. The Energy Act 2011 prevents a Green Deal Provider from taking a charge over a person’s property by way of security for payments due under the Plan.

Buiding Societies publish thier solicitor panel requirements

Newbury Building Society and Newbury Mortgage Services Ltd yesterday extended their conveyancing panel requirements by making changes to Section A.12 of their BSA Mortgage Instructions .

Acceptance to the panel is now subject to application and subject the following criteria:

• The firm must have at least two qualifying partners.

• The firm must be registered with the SRA / CLC.

• Professional Indemnity Insurance with minimum £2m cover.

• For solicitors, the firm must have CQS accreditation.

Firms that are set up as Alternative Business Structures are accepted if the underlying legal practice has been in existence at least 5 years and meets the above requirements.

Conveyancers that are not on the panel will be invited on receipt of a mortgage application where the client proposes them to act. For commercial applications the lender will instruct their own solicitor (separate legal representation). Contact Newbury Building Society’s Mortgage Underwriting Team 01635 555700, for an application.

These lenders are following the lead of Santander who as of a couple of months ago will now only accept solicitors on their panel who have CQS accreditation.

HSBC solicitors panel in Scotland asked to apply English law

One of the many obligations imposed on a conveyancing solicitor is to check the mortgage documents and ensure that the borrower (client) understands the obligations contained within the mortgage deed but also within the loan offer. This is no doubt one the reasons why the solicitor is sent the mortgage offer in the first place. This is reaffirmed at paragraph 11.1.2 of the CML Handbook which states “You should explain to each borrower (and any other person signing or executing a document) his responsibilities and liabilities under the documents referred to in paragraph 11.1.1 and any documents he is required to sign”.

Imagine the shock when Scottish solicitors realised that the HSBC loan documents stated that the conditions were to be governed by English law. Notwithstanding the CML obligations at Paragraph 11.1., the vast majority of Scottish lawyers cannot be expected provide advice on English law contracts.

In a recent letter published in the Journal of the Law Society of Scotland Willie MacRae of Liddle & Anderson  wrote “The current state of affairs seems to be nonsensical. If there was ever an argument, the lender would either have to raise separate actions for default in England and repossession in Scotland or raise a combined case in Scotland. A Scottish court would require to apply English law to the loan agreement notwithstanding the potential difficulties with the interface with Scottish property law. It therefore seems a bad idea all round as (1) clients cannot be given proper advice; (2) the lender no doubt is trying to streamline their situation and apply the same rules UK wide, but this inevitably will not happen given the Scottish dimension and could well backfire; and (3) it again seems to be attempting to sideline both Scottish law and the vast majority of the Scottish legal profession, which at the end of the day will simply disadvantage the majority of clients who will not be able to get full, local advice". 

MacRae goes on to say "I hope that rather than simply shrugging shoulders, the Society’s Property Committee is actively seeking to change HSBC’s view in this matter and dissuade any other lenders from taking a similar route".

One can only be left to speculate what would happen if situation was reversed and Scottish Lenders required solicitors in England and Wales to advise borrowers on Scottish contract law. The reaction from Scottish law firms seems rather sedate so far.

What conveyancers can learn from Gordon Ramsay

Following on from my post Do you have a preferred conveyancing client? I see similarities between a conveyancing practice and a restaurant.

A savvy restaurateur might build up a fine dining, a silver service high- priced venture. Or he might build up a successful business selling fast food meals at the lowest possible prices. Or he could make a success of Indian, Chinese, or Italian cuisine. Each would attract a following. Customers would come expecting a specific kind of meal. However, with all his skill, he could not possibly build up a clientele if, one day he served the costliest meals, the next day low-priced ones, and then, without warning, served nothing but sushi.

So too with Conveyancing. The owners of a practice have to decide on their preferred clientele. What end of the spectrum do they want to concentrate on?  Is it the equivalent of fast food--factory conveyancing--or something analogous to a fine dining restaurant where the experienced and qualified lawyer caters to bespoke--a la carte--service?

Like top property law firms, fine dining establishments sell a pricey product in a fragmented, crowded and largely undifferentiated market. But some manage to stand out and earn a reputation for adding value to the dining experience. There are some valuable lessons for conveyancing firms to consider.

1. First impressions when you walk into a restaurant. A conveyancing firm often makes its first visual impression through its website. What kind of experience does your firm’s website promise? Does it effectively preview what it’s like to do business with you?  Can visitors easily get to where they want to go? Does your design showcase important content or overwhelm it?

2. The personal touch.  Sophisticated law firm clients, like sophisticated diners, come in with an idea of what they do and don’t want.  If I tell you I don’t want sweetbreads, I won’t be happy if you serve them to me, no matter how well-prepared they are. If I tell you that I am not interested in case tracking because I want to be able to deal with you personally, don't palm me off on your assistant to update me on my case. 

If you give me a meal I could have created at home, it will feel like I didn’t get my money’s worth. Successful conveyancers really hear what the client wants—and then use it as a jumping off point to provide better service and more results than expected. That’s the kind of value-add that makes clients line up to pay premium prices--both in restaurants and in law firms.

Creating a “one-size-fits-most” pitch packet is not getting personal.  You can bet that it will not make your prospect feel special, important or well served by your firm. 

3. Give a little bit.  A good restaurant might on occasion give a small dessert for a tasting to group so that they might order desserts all around the next time they dine there.  So, ask what can you give away as a taste of what's to come, either through your website or face-to-face? A Trust deed where the clients are buying as tenants in common? A bound file of copy deeds ? A draft Will?  Everything you give away should preview what it’s like to do business with you.  Set the stage for what’s to come—awaken the palates of your prospects and clients.

4. Educated cross-selling is  the cure-all for the hard-to-grow law firm business.  Everyone struggles with it, and sadly, it is frequently ineffective.

Good restaurants know how to cross-sell, for example, a series of wines perfectly paired to the courses. London restaurant, Oslow Court is renowned for having an Egyptian dessert waiter, Neil,  an institution who spoils each customer by suggesting desserts to each taste.  Because of his cross-sell, very few people leave without having ordered dessert.

Imagine if lawyers knew this much about their partners’ practices before trying to cross-sell them. You’d have a trusted source actively participating in the sale instead of just saying, “You should meet my partner so-and-so; she really knows about Wills.” Building—and using—an experience database for your firm can make this kind of cross-selling raw material easier to come by.

Differentiation works. It just takes care and diligence and, most of all, courage to make it pay off.

Food for thought.

HSBC panel solicitors to reconsider position on freehold flats.

HSBC last week made another change to their CML Handbook Part 2 requirements. This time the amendment was made to the wording of paragraph 5.7.b which relates to whether HSBC will lend on freehold flats.

In truth,freehold flats are as rare as a QPR win in the premiership. Most flats in England and Wales are subject to leases. The reason why lenders are concerned about their security in a freehold flat is that owners (or mortgagees in possession) of freehold flats run into difficulty when major structural problems arise with the property. Unless there is a legal agreement in force between the owner of the freehold flat and the owners of adjacent properties there could well face significant problems in the future in agreeing structural repairs and their associated costs. Thus HSBC’s stance is now as follows:

“Freehold flats or freehold maisonettes are not acceptable unless the customer will on completion also acquire (or already has) the whole or a share of the freehold of the building itself, provided there are mutual rights of support and maintenance and mutually enforceable covenants, usually including a deed of covenant, being entered into each dealing with the property between the existing/other flat owners and the incoming purchaser. The bank may also need to refer the case to the valuer and indemnity insurance may be required”.

Accord Mortgages Solicitors Panel extended to BTL mortgages

Accord Buy to Let announced last week that it is widening its solicitor panel. The number now on their panel will be in the region of 2000 strong.

Conveyancing Solicitors on the current Accord Mortgages residential panel will now be accepted for buy to let conveyancing if they possess the Conveyancing Quality Scheme (CQS) accreditation from the Law Society of England and Wales. It is not clear as to what their position is regarding Licensed Conveyancers who clearly can not qualify for CQS accreditation.

Accord Buy to Let national account manager Chris Maggs says that when the lender first entered the buy-to-let market in 2011 it wanted to operate a limited solicitor panel while it established its proposition. He went on to say  “With the introduction of the Law Society’s CQS scheme we now feel in a position to expand our solicitor panel to include all firms on the Accord Mortgages conveyancing panel who hold this accreditation.”

Accord seem to be following the lead of Santander who now require firms on their solicitor panel to be CQS-accredited.

Timely reminder as to concerns surrounding impact vulnerabilities and independent legal advice

Although not an English ruling, the New South Wales Court of Appeal decision of Provident Capital Ltd v Papa [2013] NSWCA provides timely guidance in relation to a Court’s position on the obligations placed on conveyancing solicitors in relation to lending practices. In their decision the court found that there had been negligence on the part of the solicitor providing advice to a borrower and ordered that the solicitor pay damages to his client.

On 5 April 2007 Mrs. Papa mortgaged her home to Provident Capital. This mortgage was security for a loan of $700,000.00 and a further advance of $125,000.00. Provident Capital required Mrs Papa to obtain independent legal advice in regards to these loans and the security documents. She did obtain this advice from a solicitor, Mr George Caramanlis.

Upon Mrs Papa’s default, Provident Capital brought proceedings against her for recovery of possession of her property. She disputed this action, claiming, successfully as it turned out, that Mr. Caramanlis was in breach of his professional duty to her.

At first instance it was held that the contract was unjust and that Mr.  Caramanlis was not negligent, however subsequently the decision was overturned on appeal.

The Court found that Mr Caramanlis had breached his duty to Mrs Papa and had subsequently caused her loss based upon his negligent advice in relation to the loans. It was held that whilst, “…solicitors are not ordinarily required to advise upon the wisdom of transactions in relation to which they act…”, in this case Mr. Caramanlis did not act reasonably.

The Court of Appeal stated that a reasonable solicitor would have stressed to her that by entering into these transactions her business and home could potentially become endangered. Please see my previous post on impact vulnerabilities.

The Court found that Provident Capital was entitled to assume that Mrs Papa had obtained reasonable legal advice and held that even though the legal advice was inadequate this was not the financier’s fault. Orders were then made that Mrs Papa was liable to Provident Capital and Mr Caramanlis was liable to Mrs Papa.

Zurich insurance, through their risk magazine @risk, recently pointed to a situation where an English solicitor informed them that, when she had a meeting with a wife who had been asked to remortgage the matrimonial home to secure her husband’s business debts, the wife had no idea what she was really being asked to do, i.e. put her home at risk of repossession if her husband’s business failed. After a frank discussion with the solicitor, she refused to sign the papers.

Zurich go on the say that “Sadly there are still too many co-owners in this situation who are not being properly advised (or it can’t be proved that they were properly advised) and negligence claims come in from lenders against the law firms when the business fails but repossession proves to be troublesome when the co-owner defend on grounds that they weren’t properly advised".

A few years ago if you were faced with a client looking for advice similar to the Mrs Papa situation you would think twice before acting for the client due to a potential insurance claim. Now you also need to consider the regulatory concerns around impact vulnerabilities as well as the implications of being removed off a lender panel if that lender suffers a loss. For what it’s worth my advice is to stay well clear and this applies equally to giving  guarantors advice of the liabilities they are taking on.

Does 'No Sale No Fee' result in delayed conveyancing?

Let me first of all confess , even though I have worked at firms that have offered it, I don't like ‘no sale no fee’ as sales tool . I think it cheapens conveyancing and my previous posts make it clear what I think about the race to to be the cheapest conveyancer. I am not even convinced that it is something that the public expect.

This post is more about an adverse side effect of ‘no sale no fee’ conveyancing.

I believe that the commercial reality of ‘no sale no fee’ purchase conveyancing is that some solicitors (not all) will wait to receive the mortgage offer before they do a full investigation of title.

The introduction of defensive conveyancing, centralised in the hands of those more interested in reducing fees than providing a service, means that little gets done until a loan offer appears.

Meantime an impatient public and an even more frustrated agent will point the finger of blame in only one direction. Perhaps a compromise is to make it perfectly clear to purchase/borrower clients that your work will be limited to confirming instructions and ordering searches but that you will not start reviewing the paperwork or raising detailed enquiries until the mortgage offer is in. In the new world of OFR, form a regulatory perspective, your terms should make it clear if you intend to operate a defensive conveyancing protocol by waiting for the mortgage offer.

Relief for conveyancers in mortgage fraud case - but expect a backlash

In the decision in Santander UK Plc v R.A. Legal Solicitors (a firm) [2013] EWHC 1380 (QB) Andrew Smith followed the appeal court’s decision in December 2012 in Nationwide Building Society v Davisons Solicitors that a law firm can be relieved of consequential liability for a breach of trust if it acts honestly and reasonably

In this case Santander agreed to provide a mortgage to the purchaser of a residential property in London. RA Legal were instructed to act for the purchaser and the lender on the matter. The mortgage advance in 2009 was paid by RA Legal to the vendor's solicitor in reliance on documents provided in the usual way. In transpired that the vendor's solicitor was a fraudster who stole the mortgage monies.

In case you were wondering....the vendor's solicitors was a regulated firm. RA Legal even phoned the Law Society to check. There were no obvious signs that the vendor's solicitors were about to perpetrate a fraud. The vendor firm established in 2006 had two partners both on the solicitors roll. Both partners had worked in previous firms.

Santander alleged that RA Legal had released the mortgage monies in breach of trust. RA Legal sought relief under section 61 of the Trustee Act 1925.

The decision that the court handed down was that RA Legal had acted in breach of trust in paying away the advance. The question then was whether the law firm was entitled to relief under section 61. The fact that RA Legal had acted honestly was not in dispute with Santander.

Clarifying the meaning of Davison, Andrew Smith said that in order to benefit from relief under section 61 of the Trustee Act 1925, RA Legal need only to show that it had acted reasonably, not with exemplary care.  Given that the court found that RA Legal had acted reasonably the court dismissed Santander’s damages claim as well as the claims in contract and tort.

The barrister appearing for RA Legal commented that the decision was "likely to be welcomed more by defendants than claimants", because the court had "now provided a clear statement that, if a lender is to obtain compensation from solicitors for breach of trust in an identity fraud case, it is necessary to show a connection between the lender's loss and the solicitors' failings" This decision follows an increasing line of authorities for conveyancers and their PI insurers starting with Target Holdings Ltd v Redferns [1996] and more  recently AIB Group (UK) plc v Redler [2013] which restricts a  lenders' reliance on breach of trust claims against solicitors.

Whilst there may be a collective sigh of relief amongst conveyancing lawyers as a result of this decision it might be prudent to consider the lender here. Santander has suffered a significant loss as a result of a fraud. Ultimately they have carried the can. Is it reasonable for the legal industry to think that Santander should take this on the chin? When as lawyers we next hear lenders talking about how they suffer from fraud and why consolidation of their panel is an option, we should consider this case.

The most difficult question resulting this case is how the fraud could have been picked up. After all,  the sellers’ lawyers had been registered with the SRA for 3 years and RA Legal appeared to be a more than competent firm. If you are a lawyer reading this blog would you have done anything different to RA Legal?  This is perhaps a question that Santander will be looking at with their lawyers. There are clues in the full judgment and there are dots that if connected (via technologies such as COMPLETIONmonitor) could have resulted in the fraud being captured.  Please look out for my future article on how this fraud might have been prevented. 

Do you have a preferred conveyancing client?

How often does a conveyancer wish to themselves - If only I could choose my clients? Well to a certain extent you can!

It seems obvious, doesn't it? Each conveyancing client has a set of service requirements, a price they're willing to pay and a period of time they're willing to invest.

And yet...

….all too often, we try and be all things to all people, to all estate agents or brokers or trying to attract high end clients and working on an internet presence which necessitates low headline fees.

When I first started a law firm we were at our most successful when we promised to go and see every client at their offices or home (as long as they were within the M25). We even offered a ‘no-commitment’ meeting. Believe me when I say that not many prospective clients are going to have a cup of tea with you and then instruct a cheap as chips conveyancer over the internet.

First figure out who you'd like your client to be, then go make something just for them. The more specific the better...

           

Wave goodbye to the CML Handbook

Wave Lending Limited, a subsidiary of Bank of America Corporation, has taken down their Part 2 requirements from the CML Handbook

The home page for Wave Lending now states: ‘Wave has ceased all mortgage origination activity. All borrower enquiries should continue to be made to our customer services department, the contact details can be found in the contact us section’.

Wave Lending Ltd is authorised and regulated by Financial Services Authority, although not all forms of mortgages are regulated by the FSA.

Historic CML Part 2 requirements for Wave can be obtained from LENDERmonitor via their Litigation Service.

Halifax solicitor panel face new obligations for Transfer of Equity cases

As of the 1st June 2013 solicitors and conveyancers representing Halifax on Transfer of Equity cases will need to inform them as soon as the transfer has taken place.

On the 31st May 2013 Halifax transfer of equity requirements changes with Halifax adding the following wording to Paragraph 16.3.7b of Part 2 of the CML Handbook : ‘PLEASE NOTE we require you to confirm the effective date of the transfer before we can update our records – failure to do so will mean that we will continue to correspond with the original parties to the mortgage’.

Lawyers should make a file note or reminder to themselves to inform Halifax once the transfer is completed. If do not you should expect your client(s) to call you to let you know that Halifax have been in touch with them. This would be a rather embarrassing situation to find yourself in as the client will no doubt be asking themselves why you had not contacted the lender. This situation is fairly easy to avoid if you make a note to inform the lender as required.