Monday, 27 October 2014

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.

1 comment:

  1. Does the 6 month rule apply to inherited property? Would a lender need to know the probate value and use that as a previous sales price?