Duty to the mortgage lender
John Coulter highlights the importance of being aware of potential conflicts of interest when acting on behalf of both lender and borrower
When acting in a purchase, transfer of equity or remortgage, it is easy to forget that in most cases we will be acting for the mortgage provider as well as the buyer, transferee or mortgagor.
Generally, acting for the lender and borrower will not cause any issues as they will both have a common goal: the purchase of the property. There are times, however, when information comes into our possession, as conveyancers, which can adversely affect the instructions from the lender.
If you have the good fortune of being on the panel of solicitors for the lender of choice by your client, you will then receive written instructions to also act on behalf of that mortgage provider. It is important that you read these instructions carefully as they will set out the terms upon which you are requested to act and may also detail any special conditions to be met by the borrower. Do these instructions conflict with the information already provided by the borrower? If they don't then you can proceed. However, should there be any discrepancy '“ for example, the borrower's name is incorrect, there are two borrowers but you have only received instructions from one, the purchase price is different or the address is incorrect '“ then in the first instance you should contact the borrower and double check their initial instructions. Depending on this, the borrower may provide further instructions to match the lender's, or you may be instructed to contact the lender to correct their information as to the transaction. You may then receive revised instructions from the lender.
Throughout the transaction you should be vigilant towards mortgage fraud but I believe that the time when you take initial instructions is the most crucial. It is at this time that you will gather all the information you need from the borrower about their intentions and you should be aware of any instruction that may defraud the mortgage lender.
Ceasing to act
Your duty to the mortgage lender continues just as it applies to the borrower. In theory, any adverse entry that is revealed in your due diligence, pre-contract enquiries or property searches should be disclosed to the lender in the event that it may have an adverse effect on the property value or the security that the lender proposes to take. Of course, this does not happen in every case as the lenders provide us with their further instructions in the form of part 2 of the Lenders' Handbook. These part 2 instructions provide assistance to conveyancers about what the lender will and will not accept and when to refer back to them for further instructions. Unfortunately, in my experience, part 2 of the Lenders' Handbook also states that the lender will rely on the conveyancer's judgment to make a decision. For instance, many lenders will accept a personal local authority search at the conveyancer's own risk, which initially prompted many conveyancers to never opt for a personal search for fear of being sued if it was wrong. That appears to have changed and many personal searches are quicker and contain more information than its official counterpart.
It is our duty, as conveyancers, to ensure that any matter that may adversely affect the value of the property or security that the lender purports to take is brought to theattention of the lender. We must use our professional judgement and advise accordingly '“ sometimes that may mean telling a lender not to proceed.
It is easy to lose sight of our duty to the lender, especially when there is a demanding client. It is important to also remember that before you advise the lender of anything you should first inform the borrower, and, if the borrower instructs you not to tell the lender, then you should cease to act immediately as a conflict of interest will have arisen and possible mortgage fraud if you agree. You should return the mortgage documentation to the lender informing them that you are unable to continue to act; however, you should not inform them of the reason why as this will breach your other duty to the borrower client.
Fortunately, there is guidance available from the Law Society as to our duty to the mortgage lender and it is important that we are all aware of this duty to safeguard our firms and ourselves.