As well as helping the team run Today’s Conveyancer I am a consultant advising many different types of legal firms, including conveyancers, on a broad range of matters. Increasingly one of the many areas that I am being asked to help is getting a firm back onto a lender’s panel. Often I find cases of injustice and innocent conveyancers being caught up in circumstances where they need help. In those cases I will and can help. But often after a little investigation and querying of the circumstances I find that my sympathy is more often with the lender than the conveyancer.
There are many genuine cases. Please don’t feel that I am overtly pro one side or the other when it comes to the challenges of risk management but far too often I am shocked by the way in which conveyancers approach their responsibilities to lenders.
In many circumstances the conveyancer claims that they were the innocent victim or were just negligent when actually they appear to have overlooked risk indicators that they should have spotted like an elephant in a public swimming pool. In those situations it is clear why the lender doesn’t want to risk sending money to that firm’s client account but regularly conveyancers email me indicating their disappointment that Today’s Conveyancer isn’t more vocal against the perceived injustices that lenders inflict on conveyancers.
There appears to be a massive gap in the understanding of the risk that many conveyancers are handling for lenders. So I hope this article helps close that gap. I am not saying lenders are without fault but I am saying the legal community needs to sort its act out quickly.
Taking a recent example, on Tuesday I was at the annual CML Legal Update conference when I received a call from a Midlands conveyance. I can’t say anything about the CML event other than I attended and was subject to Chatham House Rules. I can, as an aside, say I felt it was a great day and I feel that it was worth the train fare, hotel and event costs that totalled nearly £750 for me. In the middle of the day an award winning CQS solicitors practice phoned me asking for advice to get onto two lenders panels where they felt that they had been unfairly removed.
I listened to the facts but felt that the firm had been either greedy or massively naÃ¯ve in the circumstances.
Be careful of the warning signs of fraud by other professionals because you could have your business destroyed by failing to think about it from your client’s (the lender) perspective.
I am not going to name the firm for the sake of their reputation. They have been removed from the Santander and Lloyds Banking Group panels and were seeking my advice as a consultant as to how to resolve the circumstance that they faced. It was almost surreal that this conveyancer phoned me in the middle of the CML conference.
The firm had been on the two lenders’ panels for years. It is a CQS firm and had won awards from recognised “important” industry bodies.
Next Tuesday I am in a meeting with the lady that has written to them to let them know that their panel has failed. It’s a small world.
The firm indicated that they had been involved in a few cases where a “gifted deposit” had occurred. They felt that because they had told the lender in each case that there was a gifted deposit they had discharged their obligation to the lenders.
When I asked a few questions it was a bit more complex. The firm had received referrals from an estate agent they didn’t know personally that was 150 miles north of their practice. In five cases where the agent had referred five different purchasers to the conveyancer there had been a “gifted deposit” by a relative in every case. The relative was always represented by the same firm who was 100 miles south of the firm acting for the purchaser. The firm acting for the donor of the gifted deposits confirmed in writing that the gifts were gifts and there was no obligation to repay the loan.
After completion the firm acting for the donor registered restrictions against the properties and the lenders who had lent the funds removed the firm in question from their panels.
The firm didn’t report to SOCA the pattern of five referred cases with “gifted deposits”, with five family members from the same agent miles and miles away. The firm feels strongly that reporting each gifted deposit to the lenders in question was sufficient. I disagree. What are the chances of a group of 5 family members all buying different properties via the same agent and possibly the same mortgage broker and there to be nothing “odd” going on?
The conveyancer stuck to the letter of the CML handbook and thought that was all they should do? For me a conveyancer should act in their client’s best interest. Where there is a conflict don’t act. Maybe I am just too far removed to “get it” but to me it seems clear.
Lenders share data. Lenders match data for trends. It isn’t a coincidence that two lenders within a few days have removed the firm from their panels. As data sharing becomes more common place this will get worse. One mistake with lender A and lenders B through to Z with remove you instantly, not just lender A. If you don’t have extensive risk management in place now you will not trade as a conveyancer soon. We are moving to instant death of conveyancers where they make poor judgements on risk. It doesn’t need to be proven negligence or fraud, it merely might be. You are removed from the panel. Your business struggles. If you are lucky you have other legal work to do for a couple of years before the Co-op does it . Then you are dead.
It may already be too late but take independent third party assessment regarding your business risks. Two years ago I pointed out to one firm issues regarding the way they deal with credit cards. Finally this week they sorted it. In a year this issue might have killed them.
Let’s face it the firm in this example was either inappropriately naÃ¯ve or didn’t report a significant issue because an introducer might stop introducing cases. I am not sure which is worse.
If the borrowers were lying about their income the lender can’t tip off the conveyancing firms involved. If the mortgage broker was involved in a fraud the lender can’t tip off the conveyancing firms. If there was valuation fraud the lender can’t tip off the conveyancer. But it is entirely fair and reasonable for the lender to say there is a pattern of activity where the conveyancer received work on multiple occasions where fraud was involved and therefore they don’t want to work with that conveyancing firm ever again. And why should it?
The conveyancer is the easy target to sue. Mortgage brokers, estate agents and valuers don’t have run off insurance. They don’t offer conveyancers level of cover. So don’t be naÃ¯ve. Don’t take referrals from people who you aren’t entirely certain about. When estate agents act for lots of similar relatives all buying houses through that agent where there is always a gifted deposit should massive alarm bells be ringing with the conveyancer?
So under OFR your systems should consider the risk in every case and the conveyancer should spot risk issues like:-
– Property at a distance.
– Introducers at a distance and maybe at a distance from the property.
– Clients at a distance from you and the property
– Firms on the other side at a distance from the property or other professionals
– Regular gifted deposits on every case from that introducer.
Would you spot them and what controls do you have in place?
Wake up, you might be complicit in a fraud or implicated without your knowledge and it may destroy your business, no matter how many awards you have won.
Regular readers know I am a supporter of referral fees and that I don’t think conveyancing firms should dabble, but I am a strong believer in risk management and if a particular introducer has a pattern of behaviour of “gifted deposits”, advertises that they can give purchasers access to “below market valuation” properties, or where the other side offer something “too good to be true” it is the conveyancers obligation to say “no I am not going to act” and report it to the authorities. It is not good enough to write to the lender and disclose the facts on one case when you know there is a pattern and turn a blind eye to the fact you may be party to fraud.
Conveyancing at the moment is like Russian Roulette one mistake and you are dead. This is not a time to be greedy and work with introducers you don’t know, don’t trust and who know aren’t ethically or morally pure. Your ability to trade can be removed quickly and without any real right for you to appeal.
Don’t try to complain about HSBC or claim you are a victim when you should be the gatekeeper of protection for your lender clients and you work in a sector that has totally lost the understanding of the duty it has to all its clients.
Maybe you should consider an independent assessment of the real commercial risk in your business, never mind a whole heap of quality marks that don’t investigate the real risk you are taking as a business.
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