6 Month Rule Starting to be Extended By Lenders

In recent years a number of solicitors have been found guilty of professional misconduct after breaching the six month rule requiring conveyancing solicitors, to report any transactions in which the property being purchased/remortgaged  has been owned by the owner or registered proprietor for fewer than six months.

The rule, contained in the Council of Mortgage Lenders’ Handbook, is primarily designed to combat the potential for vendors to inflate the value of a property and commit fraud. The lenders’ instructions are clear – you must notify the lender under the ‘six month’ rule of that fact (subject to the stated exceptions)

Yet lenders and PII underwriters often me that non-compliance with disclosure under the 6 month rule is still all too frequent.

The recent case of E.Surv Ltd v Goldsmith Williams Solicitors [2014] EWHC 1104 serves as another reminder that a lawyer must perform the express obligations under the CML Handbook by undertaking a Land Registry search and by reading the office copies so obtained as well as by reading a copy of the valuation report provided to him.  The law firm admitted breach of an express obligation to inform the lender that the borrower had been the registered proprietor for less than 6 months. Goldsmith are not the first and will certainly not be the last to fall foul of this obligation.

The number of claims relating to the failure to comply with the 6 month rule may be set to increase as the lenders start extending their requirements. In the last 24 hours Paratus AMC Ltd changed their CML Part 2 requirements to :

For re-mortgage applications the customer must have owned the property for at least 12 months.

Sub-sales, where the seller has owned the property for less than 12 months and back to back transactions are not acceptable.

Applications which involve assignable contracts or irrevocable powers of attorney in favour of intervening sellers are not acceptable. You should report any other structure to the transaction which has a similar effect to our solicitors.

Other lenders are likely considering similar changes. Firms with current accounts with COMPLETIONmonitor and LENDERmonitor will of course receive notification of changes. Lender focused webinars can be found here.

Is a 'major glitch' for the BOE a 'minor breach' for a solicitor ?

Was your firm - or more importantly were your clients - affected by the technical issues experienced by Bank of England yesterday?

It is understood that many conveyancing transactions were delayed as a result of system problems with the Clearing House Automated Payment System (CHAPS) used by solicitors to transfer same-day mortgage payments during the property buying process. The Chaps system processes on average 5,000 conveyancing completions every day meaning that over 10,000 clients may have had their move delayed or put in jeopardy.  

Quite aside from the stress to the clients (and individual lawyers) hundreds of COLPs will now be on call to decide if the delay to a client's completion should be considered and recorded as a 'minor breach'. Firms must provide services which protect their clients’ interests O(1.2) in a timely manner O(1.5).

Each case needs to be decided on its merits. With many buyers and sellers not being able to move by early afternoon many a COLP will have to consider whether more could have done more to manage expectations.

How many firms considered personal completions, for instance, where the distances involved made this a viable option? Were banks prepared to waive the usual requirement for 24 hours’ notice for banker’s drafts?

Consideration should be given as to whether clients ought to be warned about this possibility in the future - especially given the problems RBS previously encountered. Perhaps a warning in the appropriate letter or report on title for example about the aspects of the transaction that are outside your control?

Food for thought.

Has the Law Society shot itself in the foot with its CMS Proposal?

Unanimity across the spectrum of law firm profiles is rare, yet 99% of law firms surveyed agree that The Law Society's view of endorsing only one or two case & practice management software suppliers is counterproductive. The Society's action may well lead firms to question the endorsement of Reliance and the merits of IT projects such as the Conveyancing Portal. An increasing number of firms are asking themselves whether the Society represents their interests  or is seeking to justify its own existence.

In a recent survey 236 out of 237 senior representatives of over 200 law firms said they were opposed to the Law Society’s proposal to have one (or a very small number of) preferred supplier/s of case and practice management software.

The members of the Legal Software Suppliers Association (LSSA) represent about 80% of the installed law firms market for IT systems in the UK.  They are concerned about a new initiative by the Law Society to engage in a process to choose one supplier as the endorsed partner of the Law Society, with unrivalled exposure to the legal sector. By contrast, the LSSA said, “We are not aware of any discussion with the industry on this issue which we would regard as essential for a properly informed research project.

Those who challenge the evolution of the conveyancing portal  claim that the project is divisive and expensive, imposing a "top down" solution to a problem that barely exists. This is an allegation that is now also being levied by those questioning the 10m investment made by the Law Society into 'Veyo' the new conveyancing portal to be launched next Spring.  In recent weeks a number of stakeholders have asked for me to comment on the conveyancing portal. My view (and it’s one that I have given to the Law Society itself) is that, given that conveyancing negligence claims have soared since targets and speed became all important, more energy should be expended  on reducing risk, thereby boosting the reputation of solicitors among the public and lenders.  

Earlier this year, the online magazine Legal IT asked : So how do you get to become a preferred supplier?

‘The Insider has seen copies of the LSSA/Law Society email exchanges, in which the Law Society is less than forthcoming, but vendors we have spoken to say the only criteria appears to be ‘whoever is prepared to pay the most money’. The figures being mentioned are an annual fee of £50,000 to £100,000 plus commission on sales.”

Chief Executive of the LSSA, Roger Hancock comments: “Diverse Case and Practice Management solutions reflect the requirements of the legal profession from the smallest to the largest, the specialist niche firms as well as those in general practice. The Law Society should take note of its membership’s views regarding a preferred supplier of case and practice management software. The profession does not want this, and considers it totally impractical for a variety of reasons. We call upon the Law Society to abandon this scheme that the industry is so against.”

When asked to comment on the LSSA’s survey findings, the Law Society made no comment.

Insurance Season Boosts Conveyancing Risk Management

Legal software house Lexsure have announced that in the three months leading up to 1st October over 120 firms upgrade their risk processes by  signing up to Lexsure’s conveyancing risk management products.

Simon Seaton, CEO of Lexsure puts the growth down to the recent groundbreaking announcement by  AmTrust Europe Ltd whereby the  ‘A’ rated insurance company declared that for the first time an insurer would link the use of risk mitigation software with lower expenditure on professional indemnity (PI) premiums for law firms.

Seaton commented ‘ COMPLETIONmonitor has previously been recognised as a valuable risk mitigation tool but AmTrust took the innovative step to reward firms that reduce their risk profile by using COMPLETIONmonitor in the conveyancing process. The reaction from firms who insure with AmTrust to  the  per case savings on their PI renewals for each case completed with the software has been tremendous. Even for small firms with active conveyancing practices, the potential for saving of thousands of pounds is very attractive”

Russell Newell, Head of Professional Indemnity at AmTrust Europe, said ‘We appreciate that the cost of PI insurance premiums has a great impact on law firms, particularly for firms that do a lot of conveyancing, due to the frequency and size of claims in that field. We believe it is right and fair to offer a financial reward to firms that empirically demonstrate risk mitigation by using COMPLETIONmonitor. We are continuing to urge firms who have taken out insurance with AmTrust to use COMPLETIONmonitor to help reduce claims and their own premiums for the future’  

Commenting on the premium reductions last month John Wooldridge, Director of Solicitors’ Professional Indemnity at Howden Windsor said : “We are always looking to find ways for our clients to improve their risk management strategy while also reducing their PII premium.  We are delighted that AmTrust have agreed to recognise the improved risk profile of firms using COMPLETIONmonitor by offering them a direct saving on their premium.  We’re expecting some firms to save tens of thousands of pounds."