Lenders must not ignore lawyers' concerns
17 February 1998
Kenneth Byass hits back at claims made by Halifax solicitor Chris Jowett that the Law Society is endangering the future of planned Standard Mortgage Instructions. Kenneth Byass is a Law Society property and commercial services chairman and a member of the SMI working party.
The deafening four-month silence from the mortgage lenders over the negotiations on the Standard Mortgage Instructions (SMIs) was finally broken last week in a rather extraordinary article in The Lawyer's conveyancing feature by Chris Jowett of the Halifax.
Jowett made a number of claims on behalf of the mortgage lenders about the Law Society's approach to its negotiations with them and some of the key issues connected with the SMI.
According to Jowett, everything in the mortgage lenders' preferred version of the SMI is fair to solicitors, and the Law Society's objections to important parts of current draft SMI are due to problems with the Solicitors' Indemnity Fund (SIF).
Conveniently for the lenders, he claims the competition authorities would never allow the lenders to pay solicitors directly for the work they do on the lenders' behalf.
He bolsters his arguments with dire warnings about the future of high street practitioners if the Law Society does not quickly concede to the lenders' arguments.
It is, of course, true that a fair and reasonable set of SMIs, agreed with the mortgage lending industry, will benefit both solicitors and lenders and, by extension, their clients.
It will set a standard of good practice for all professionals involved as well as ending the difficulties caused by the myriad of different instructions given by different lending institutions.
From the solicitors' perspective the SMI should ensure that they are not expected to carry potential liabilities which are unreasonable.
It should also allow for solicitors to be paid a fair fee for the work they do on behalf of the lenders and for the responsibilities they undertake.
It should also guarantee that any conflicts between the lenders' and borrowers' interests are managed effectively.
Such a set of SMIs is the ultimate goal of the society. We cannot ever accept a set of SMIs that are dictated solely by the commercial interests of the mortgage lending industry.
And there are a number of problems with the current draft of the SMIs. For example, there is the innocent sounding clause, which states: "The conveyancer must ensure that... the property is validly mortgaged to the lender by a first legal charge."
The effect of this would be that, by signing the SMIs in this form, the society would be committing the profession to an absolute liability.
A conveyancer who has conscientiously carried out all the identity checks that are required by the SMIs, but has nonetheless been deceived by an undetectable impersonation, will be liable to the lender because the mortgage, having been signed by the impersonator, is not valid.
It is quite proper for both SIF and the Law Society to object to this clause. The profession would expect nothing else. On the vexed issue of the development of some sensible system for the payment of solicitors by lenders for the work they do on their behalf, it was suggested that the Office of Fair Trading (OFT) has blocked the potential solutions to the problem.
It is true that the OFT raised objections to an agreed industry-wide scale of charges on the grounds that this would be anti-competitive.
However, the OFT has raised no objections to individual lending institutions developing their own scale of fees and have accepted that the scale of one mortgage lender is likely to be very similar to that of others.
The competition authorities have certainly not said that the only option is the current unsatisfactory situation in which solicitors are not paid by lenders.
On the crucial regulatory issue of joint representation of lender and borrower, it is important that the Law Society should exercise some control over the instructions that are issued by mortgage lenders for two reasons.
Firstly to ensure that mortgage instructions do not create irreconcilable problems of conflict between the solicitors duty to the borrowers and their obligations to the lender.
Secondly, it is a safeguard against the imposition of unreasonable obligations and liabilities on solicitors. It takes two to make a contract the terms must be acceptable to both parties and not unilaterally imposed by one only. It is impossible to negotiate terms between lenders and solicitors on a firm-by-firm basis.
This leaves as the only alternative the one proposed by the Law Society. That is that the terms be settled between the lenders and the Society.
The Law Society remains ready and committed to taking the SMIs further. However, the lenders will have to recognise that our current objections to the draft are legitimate if the project is to succeed.
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