We suggest some ways in which conveyancing solicitors can minimise their exposure.
“Conveyancing tops indemnity claims”.
Remarkably, this is an actual headline from 2002 and it is as true today as it was over thirteen years ago.
Whilst this is a welcome relief for conveyancers and their insurers alike, conversely there has been evidence of an increase in commercial conveyancing notifications with lenders realising historic losses. Furthermore, the value of conveyancing claims has significantly increased due to the effects of claims inflation caused by a 40% increase in property values since 2004.
Regrettably, this means that solicitors and insurers should be braced for conveyancing topping the indemnity claim league table in years to come. It is little wonder that prudent insurers will most likely continue to view any conveyancing exposure with caution leading to higher premiums for firms with a conveyancing exposure. With this in mind, conveyancers should continue to embrace risk management to safeguard their business.
At the heart of the problem is the increased commoditisation of the conveyancing process, driven by price. A key misconception for many is that conveyancing is simply a form filling exercise. The reality is every conveyance has its own characteristics, as every property and client is different. From a claims perspective, undoubtedly many claims result from poor working practice and a lack of supervision. So whilst using less experienced practitioners can be a way to reduce costs, to avoid claims, firms should:
- Not ignore the necessity for continuous training in respect of legal and regulatory issues
- Implement a system of best practice including proactive supervision by an experienced conveyancer
- Ensure the conveyancing process is methodical with the appropriate checks
Know your client
It may seem obvious, but there have, and continue to be, claims which derive from solicitors not fully understanding who they are acting for and who they are taking instructions from. Claims can range from mortgage fraud to the purchaser not being able to convert the use of the property as intended.
Key things to consider include:
- Always aim to meet the client in person (we realise this is not always straightforward)
- Where certified documentation is accepted, check the identity of the person certifying and make independent contact with them
- Cross-check the documentation provided against other information provided by the client
Acting for the lender
It is common practice for conveyancers to act for the buyer as well as the lender in a transaction. As such, the lender is also a client. From a risk management perspective, the solicitor should be aware from the outset that the CML requirements are exactly that – they are the lenders’ instructions and should be treated as such and complied with. Lender claims contribute significantly to the number of conveyancing notifications with many occurring as a result of a failure to comply with the lender reporting requirements including failure to:
- report incentive schemes where the deposit is paid by the seller,
- report whether the property had been sold in the previous six months
- establish where the deposit and any balance to the purchase price of the property is coming from.
It is worth remembering that the Certificate of Title issued to the lender ultimately states that the lender requirements have been met. To reduce risk, the practice should consider restricting the signatories to such documents and ensure there is an independent check.
Unfortunately, the conveyancing process does lead to mortgage fraud and the number of mortgage fraud cases has more than doubled since 2007. In the vast majority of cases, the solicitor has not been dishonest and is innocently caught up in the fraud. However, whilst there may be no dishonesty, negligence is a possibility and ultimately this will lead to claims. Typically, such fraud involves either a bogus seller/solicitor or a combination of both. On completion of the conveyance, funds are transferred to purchase the property, which then disappear, leaving the buyer and lender out of pocket and with no security over the property. Risk management questions the prudent conveyancing should ask include:
- Do you know the firm and individual solicitor? If not, check with the regulator and perhaps undertake an internet search
- Pay attention to contact details including mobile numbers and email addresses
- Question whether the transaction feels right - is the seller willing to waive a deposit or requirement that the deposit is paid directly to them? Is the sale under-value or the transaction being completed at an unexplained speed?
Of course, the above does not definitively indicate fraud and there may be very good answers to these questions. However, as with every step of the conveyancing process it certainly pays to dot every ‘I’ and cross every ‘T’.