Lending weight to the case
5 February 1995
23 June 2014
13 December 2013
13 June 2014
4 August 2014
5 August 2014
In recent years there has been a steady stream of conveyancing-related policy initiatives by the Law Society. For example, the 'Cost of default' paper in 1992 suggesting changes to the way the compensation fund operated and, more recently, 'Adapting for the future' which, among other things, advocated compulsory separate representation for mortgage lenders and borrowers in residential conveyancing. One by one they have been abandoned or put on hold.
The 'defined retainer' or 'terms of business' for lender-clients is the latest proposal. Though suspicious that this could be separate representation through the backdoor (because lenders might wish to go beyond the package and thereby 'forfeit' joint representation), the Council of Mortgage Lenders awaits Chancery Lane's proposals and will give a considered response.
Lenders and solicitors alike must be wondering why concrete results never seem to emerge. I believe the reason is simple. The Law Society fails to address the real problems and when it does, it has wrong solutions. It consistently makes proposals which, in effect, would pass responsibility for the profession's problems on to lender clients. Lenders and solicitors would be far more co-operative if the society attacked the problems at source.
The profession faces three serious difficulties. First there is solicitor default. The current cost to the profession of the fraud and poor standards of a minority of solicitors is astronomical. In 1994 claims paid by the indemnity fund alone totalled £196 million. In recent years around 50 per cent of the indemnity fund claims have been conveyancing-related.
The society and the lending industry, both individual lenders and the CML, have done a great deal to fight fraud. But the value of grants by the compensation fund (which relates to fraud) is generally about one-tenth of those paid by the indemnity fund, which mainly covers negligence. It is, therefore, crucial that the society concentrates on the conveyancing quality issue.
Second, there is the slump in the housing market which has hit the profession hard.
Third, there is the increasing problem of excessive solicitor numbers. In 1989 there were about 55,000 solicitors with practising certificates, but by 1993 that number had risen to over 63,000. In roughly the same period the number of conveyancing transactions fell from just over two million to over one million. The authors of 'Adapting for the future' could not see "how at present conveyancing can provide a source of reasonable prosperity - or even economic survival - for all those currently competing in it".
In 1987 there were just under 3,000 admissions to the profession, by 1993-1994 there were nearly 5,000. Restricting entry to the profession has been offered as a solution to this over-population, but the numbers still continue to rise.
These problems combine to place significant burdens on honest and competent practitioners. It is clear that none of these are the fault of lenders or borrowers, but many of the society's proposals over the last few years would have a significant effect on them, without providing real solutions.
Compulsory representation would increase house-buying costs, cause extra delays in conveyancing and be anti-competitive (as the Office of Fair Trading suggested). Most of the profession do not want it and both the Scotland and Northern Ireland law societies have
The suggestion in 'Adapting for the future' that the lender's solicitors should accept a certificate on title from a borrower's solicitor whom he would also be policing is ludicrous.
Recently a number of false trails have been laid. The first is the society's assertion of conflicts of interest between lenders and borrowers in residential mortgages. This is based on Clark Boyce v Mouat (1993) (based on the conflict between a principal debtor and a guarantor) and recent cases where the only reason for the conflict was that the borrower was trying to defraud the lender. In most cases lender and borrower have the same interest - good title to the property.
Another red herring is "excessive" lender requirements on solicitors. If, as the society suggests, lenders' instructions to solicitors have expanded in recent years the reason is clear. Lender-clients, faced with declining conveyancing standards, are stating expressly what they once felt was safe to leave to their conveyancer's expert judgment.
Finally, there is the suggestion that lenders are not real clients because solicitors do not get a fee for mortgage work. Lenders are undoubtedly clients - it was solicitors themselves who dropped the practice of charging a separate fee.
The CML has always maintained that the vast majority of solicitors are honest, competent professionals and that their relationships with lender clients are generally excellent. The CML has already co-operated with the society in its work on a conveyancing quality mark.
If a standard of real integrity emerges, one which both the lender and borrower clients could put faith in, then it would have a major effect on the real issue - conveyancing quality. If standards rise, indemnity funds claims must fall.
Chris Lawrenson is under secretary at the Council of Mortgage Lenders.