Amendments To CML Lenders’ Handbook - 19 June 2017

The following amendments will be made to the Lenders Handbook for England and Wales, Scotland and Northern Ireland on 19 June 2017:

England and Wales

• A minor amendment to reflect that the FASI and MASI professional qualifications are no longer offered.

Scotland

• Updating the Handbook to reflect the closure of the Register of Sasines to new standard securities
• Removing reference to obsolete Law Society guidance in relation to coal mining
• Aligning the Handbook instruction with England and Wales in respect of warranties for new build properties
• Updating the handbook to reflect the use of digital discharges
• A minor amendment to reflect that the FASI and MASI professional qualifications are no longer offered.

Northern Ireland

• A minor amendment to reflect that the FASI and MASI professional qualifications are no longer offered.
• Aligning the Handbook instruction with England and Wales in respect of warranties for new build properties

The CML will for an updated summary of amendments will be published alongside the changes, as usual.

How Can Conveyancers Avoid a "Kodak Moment"

A director of VC company recently advised me that ‘there are only two types of industry left..those that have been disrupted and those that are ripe for disruption’.  

The legal industry will, sooner or later, witness significant change regardless of how loud the naysayers are. Concluding that because disruption hasn’t happened yet, that it will never happen is a high risk approach.

Simply repeating the statement “It won’t happen to us” again and again did not prevent disruption to newspaper publishers, telephone utilities, stockbrokers, record companies, bookstores, travel agencies and the retailers.

The reason Kodak failed, was not due a lack of corporate strategy (the top brass saw digitisation coming), and nothing to do with poor technology (in 1975 Kodak built one of the first digital cameras and held more patents than it’s competitors). Kodak failed because it was a chemical company and a bureaucracy, filled with people eager to do what they did yesterday.

Like Kodak many of the owners of law firms that I talk to recognise that change will happen but want to hold on to existing processes for as long as possible.

It would be wrong to assume that law firm managers  don't care about doing things better. But overseeing and paying for change for the benefit of the next generation of lawyers  isn't what they signed up for.

Law firms must make sure they are not falling into the same trap as Kodak. There are a number of potentially disruptive developments occurring at present which may have similar effects on firms as digital photography had on Kodak. Rocket Lawyer and other online legal services are just a couple of examples. Since most owners of firms are lacking experience of how to detect and manage disruption they will have to be especially vigilant and prepared to go through one or two false alarms on their way to developing relevant experience.

Will Poor Conveyancing Quality be Exposed?

If you are not going to be a good conveyancer then you better be a lucky one and hope that events don't conspire to expose errors. I don't fancy your odds in the long term though if you continue to make mistakes.  

Conveyancing errors often are allowed to happen for one of two reasons:

You're in a huge hurry and you can't process all the incoming information properly. But more common...

Our heads our turned in order to focus on short term thinking. The ‘lifting of the carpet’ may happen for months or years and possibly never. You would be amazed to learn how many lawyers tell me ‘I have not been sued in 20 years of practice and therefore clearly I do not make mistakes’.

Similar thinking is the reason why most of us don't save for retirement, don't pay attention to long-term environmental issues, continue to smoke and, tragically, tolerate (or fall prey to) irrational rants about things like vaccines.

Poor decisions and errors happen not only due to lack of knowledge. Often poor decisions happen because a firm can be swayed by short-term comfort and ignore long-term implications. A good example of this is when I was told by one conveyancing firm that they do not do environmental searches (even where their lender client requires it) because the costs made their conveyancing quotes less attractive than their competitors. A bad decision feels good in the short run, easy for someone to justify when the decision is driven by apparent immediate economic pressures. But there's a gap when we get to the long run. In my recent webinar ‘The Future of Legal Technology’ I talk about the concept of ‘Nowism’ as a blocker on innovation and risk management.

The job of the managing partner, HOLPs and COLPs is to elevate the long term risk management of the conveyancing process regardless how hard the marketing and tribal noise around us encourages to fall prey to instant comfort of pushing through transactions at volume and speed.

The future will ultimately ignore short term requirements.

HSBC Stops Lending on Leaseholds with Onerous Ground Rents

HSBC have become the latest lender to change their CML Handbook instructions to lawyers in relation to ground rents.

Section 5.14.9 of HSBCs CML Handbook Part 2 now reads

We will not provide residential or Buy to Let Mortgages in the following circumstances:

• The property is subject to an onerous Lease clause regarding an excessive or unreasonably escalating ground rent.

This change comes hot on the heels of the Nationwide Building Society change on the 11th May. Despite some mainstream and industry press pointing to the fact that Nationwide were the first lender to make such a change, this is not the case. A number of lenders were making changes introducing new requirements in relation to ground rent five weeks earlier.

Other Part 2 sections of CML Handbook for HSBC were also changed yesterday. Law firms wanting to be updated when lenders change their instructions can sign up to the LENDERmonitor Alert Service.  

The Conveyancing Checklist - The Sharpest Tool in the Box

One reason not to use the latest legal technologies reducing conveyancing risk is that it potentially lulls the lawyer into a false sense of security. Lexsure’s intelligent checklist system COMPLETIONmonitor is sometimes met by such an objection.

The phenomenon known as ‘inattentional blindness’ is real. This is when you ask people to look for something specific and they develop a startling inability to see things in general — even things that would normally be glaringly obvious.

In one rather amazing experiment on ‘inattentional blindness‘ subjects are shown a video of a fast-paced ball game and asked to count how many times the ball is passed back and forth. Partway through the video, a person in a gorilla costume wanders into the middle of the screen, beats its chest a few times, and then wanders off again. Here’s the amazing part: between 33 and 50% of subjects don’t notice this happen. Perhaps this bears repeating: up to half the people instructed to pay close attention to a video fail to notice a six-foot-tall, chest-pounding gorilla in the middle of it.

Here’s a thought experiment: You have a hundred property lawyers dealing with an identical leasehold purchase. Suppose you give half those teams a checklist. Now suppose the test paperwork includes a complication that isn’t on the list. Which half is going to do better at noticing the problem? I’d bet it’s the group without the checklist.

So, have we proved that checklists are a bad idea? That doesn't seem to stack up with the evidence; there's significant proof that checklists work, to the extent that certain insurers are prepared to bet on it, and offer reduced PI for firms that use software such as COMPLETIONmonitor.

In that case, how is it that Lexsure have bridged the gap between risk of omission and inattentional blindness? Simple. they have 10 years of group discussions behind their technology, allowing a flexible and truly comprehensive  checklist to evolve, with detailed input from hundreds of expert conveyancers working on many weird and wonderful cases.

The function of the conveyancing risk mitigation checklist is as much psychological as practical. It is a first step toward accepting our fallibility in word of increased conveyancing risk — a kind of gateway drug to humility. With its lagging standards, conveyancing urgently needs checklists.

Simply dismissing the value of a checklist  is like saying ‘I would rather use a blunt knife than a sharp knife because I can cut myself’. In reality, cooks know that a sharp knife is less likely to cause injury, because it goes where you point it. It does what you tell it to do, which means you can focus on what you want the outcome to be.

The challenge of a sharp knife is that it puts ever more responsibility on the person who uses it. It will do what you tell it do, so tell it well.

You can opt not to use the sharpest checklist technologies but you may find that your existing processes are akin to a blunt instrument that in the long run could be a lot more dangerous.

Conveyancing: Sorting by Price

Sorting by price is the dominant way conveyancing online now happens with most consumers picking the lowest advertised price.

If you think I am wrong, ask those firms who are the most expensive on comparison sites how much business they win compared to those publishing lowest fees. Just like cheapest airline ticket or cheapest insurance or freelancer the lowers price comes up first, and most people click.

This is ideal for the comparison sites as it’s simple to build. The price is a number, and it's easy to sort.

It suits the lazy conveyancing firm and it’s great for the naive consumer. If a potential client can't take the time to learn about the options, about quality, about side effects, then it seems like buying the cheapest is the way to go--surely all conveyancing lawyers offer the same service anyway?

For the law firm nothing is easier to improve than price. Low price conveyancing is the domain of the conveyancing firm who doesn't have anything more meaningful to offer. It takes no nuance, it’s a short term win with no long-term advantage, no concern about the big picture or long term health of the firm. Simply become more brutal, demand more from your lawyers and cut every corner you can. And then blame the system.

Yet most of us understand that it makes no sense to hire someone merely because they are the cheapest. After-all how many of us would pick a book or a movie or a restaurant simply because it costs the least.

Ask yourself this question:  how often is the cheapest choice the best choice?

Ransomware: Lessons for Conveyancers

The recent cyber attack on the NHS is a stark warning to a conveyancing industry targeted and vulnerable to cyber crime.

Imagine the scenario..It’s 7 p.m. on a Friday. You are about to finish a report on title due the next day when a message pops up on your laptop. It informs you that a third party has gained control of your system and encrypted all your files. To unencrypt your files, you must pay a ransom.

All your files on your computer system are now unreadable. Thanks to this ransomware attack, your firm has basically been shut down while your system is held hostage. Have you completions been compromised? Did clients expecting their balances receive them? How is everyone in the firm going to to work on Monday? Did you open a file that you should not have. A hundred questions and scenarios are going through your mind.

The most common ways for the software to be installed on a law firm’s systems is through phishing emails, malicious adverts on websites, and questionable apps and programs. After the ransomware is downloaded, generally only a unique “key” can decrypt the firm’s files.

Ransom amounts differ, but the price — depending on the hacker behind the scheme — is usually about £500. Larger firms may face significantly higher ransoms. The hackers normally demand payment in bitcoins, a digital form of currency that is difficult to track.

Lawyers should always exercise caution when opening unsolicited emails or visiting websites they are unfamiliar with. Never download an app that hasn't been verified by an official store, and read reviews before installing programs. Most ransomware programs are extremely difficult to combat. Nevertheless, there are certain steps one can take to work around a virus, rather than simply acceding to the hackers demands.

One way is to recover files. Lexsure has been offering conveyancing firms backup solutions as one of its suite of risk management tools since 2010. The easiest way to fix a virus is to clean it off the infected properties and restore the information from backup systems. That is why you should frequently back up your files and use a service that provides redundant backup facilities. There are of course regulatory compliance requirements in relation to protecting and backing up client data.

When a firm has the option of paying hackers a lot of money or losing a couple of minutes of work and restoring from files that have been backed up, the choice becomes obvious. If you are not completely satisfied with your backup system and provider, now is a good time to conduct a review and make any necessary changes.

This is also a good time for conveyancing firms to considering the use file-accessing auditing to open their files. This functionality, which is built into Microsoft Windows and available through most secure, cloud-based solutions, tracks each time a user opens a file or folder. By monitoring the logging activity, the firm’s IT professionals can identify patterns or instances of unauthorized access. Through file-accessing auditing, you can launch a course of action such as stopping the server or removing file share creating the opportunity to halt the attack.

Conveyancing firms law firms have been hearing for years that they could be the victims of a cyberattack, the danger has never been clearer.

The SRA report on Information Security includes the latest information on what law firms can do to keep cyber-secure. We have also published tailored information for small firms, a guide to common scams, up to date scam alerts, and case studies.

Nationwide Building Society Sets Out New Ground Rent,Event Fees and Lease Length Policy

Following it’s announcement earlier this week to make changes to their lending requirements for new build properties the lender has now updated their CML Part 2 instructions.

Sections 5.14.1 and 5.14.9 now have the following paragraph added:

NEW BUILD PROPERTIES (includes office conversions but does not apply to Shared Ownership)

The following are not acceptable:

- The unexpired lease term on a new build flat is less than 125 years

- The unexpired lease term on a new build house is less than 250 years

- Starting ground rent is more than 0.1% of the property value

The lease must be amended to comply with the above. If not the case cannot proceed. Please advise us where the case cannot proceed.

Ground rents and event fees:

Ground rent and other event fees must be reasonable at all times during the lease term. For example, it is acceptable for ground rent escalation to be linked to RPI (Retail Price Index) or a similar index and where this is the case we do not need to be advised. However, unreasonable multipliers of ground rent will not be permitted, for example, doubling every 5, 10 or 15 years. These must be referred to us and we will advise if our mortgage offer remains valid. If you are unsure as to whether the terms of a lease are unreasonable, please refer the details to us.

To keep up to date with the latest changes subscribe to the LENDERmonitor Alert Service.

AmTrust Extends Rewards for Risk Management to Licenced Conveyancers

‘A’ rated insurance company AmTrust Europe Limited have extended their ground breaking agreement with legal software house Lexsure that links the use of risk mitigation software with lower expenditure on professional indemnity (PI) premiums for licensed conveyancers, a move that could be worth thousands of pounds for some conveyancing practices on the JLT/CLC Scheme.

Professional indemnity premiums are a great concern for licensed conveyancers, as they constitute one of the largest costs to the business aside from salaries.

Licensed conveyancers can now evidence their lower risk profile for conveyancing transactions by using Lexsure’s COMPLETIONmonitor software, an online checklist, tailor-made for conveyancers to reduce and eliminate errors and omissions.

Licensed conveyancing firms that reduce their risk profile by using COMPLETIONmonitor in the conveyancing process who insure with AmTrust can expect a per case savings on their PI renewals for each case completed with the software. Currently such a scheme is limited to 1-3 partner solicitor firms. Even for a small but active conveyancing practice, this could result in a savings of thousands of pounds. Alex Dyer, Head of Professional Indemnity at AmTrust Europe, said ‘We appreciate that the cost of PI insurance premiums has a great impact for licensed conveyancers. We believe it is right and fair to offer a financial reward to firms that empirically demonstrate risk mitigation by using COMPLETIONmonitor’. 

Note

AmTrust Europe Limited provides tailored insurance products and support services to partners, focusing on property, casualty, speciality risk, accident and health, legal and warranty insurance products.   

AmTrust Europe has been rated ‘A’ Excellent by A.M.Best.  The AmTrust Group is committed to disciplined underwriting focusing on niche products, low-hazard risks and serving the client’s needs.  

For further information regarding AmTrust Europe Limited please visit www.amtrustinternational.com.   All media enquiries please refer to Denise Johnson at denise.johnson@amtrustgroup.com  

Conveyancers: Are you a Tortoise or Hare?

Conveyancing in recent years puts a premium on speed: the sooner, the faster, the better. You only have to look at most law tech companies in the conveyancing space to see claims of generating  ‘greater efficiency’ or claiming that their software ‘speeds up the process’.

I recently attended a managing partners seminar where one of the speakers all but said that if you wanted to be involved in volume conveyancing in any way you would only be profitable if you had systems in place to dramatically speed up the process and cope with bulk work. Pile it high, do it cheap and do it quick. How depressing.  

I agree with Malcom Gladwell, journalist and author, who during a recent interview at Wharton Business School said "In any kind of high-stakes job where the penalty for error is high, you can't afford to have hares,"

Insurers, lenders, regulators and law firms should fear the high output, lots-of-errors lawyer.  

My understanding from speaking to insurers and brokers is that most mistakes are not due to lack of legal knowledge but rather based on administrative matters or failing to follow a client’s interactions (CML Handbook instructions in particular). Such errors are often due to pressures of speed from not only the clients but often third parties such as agents or brokers.  I would even go one stage further and say that some of the most recent well publicised frauds might have been avoided if the lawyer concerned would have had the time to ‘join the dots’ or spot the various ‘indicators’ that existed.

I am not saying that lawyers should drag their heels on conveyancing transactions. Rather, I am suggesting that we redress the balance of speed and quality. If you have to compromise on one, in the long run you may be better off being a tortoise and getting it right.