A solicitor described as “self-critical to an extent that was beyond any fault found” has been cleared of dishonesty after facilitating a transaction which bore the hallmarks of mortgage fraud.
The Solicitors Disciplinary Tribunal (SDT) said Stephen Pearson had instead been “manifestly incompetent” and reckless over actions that pre-dated the 2008 financial crash, and fined him £2,500.
Mr Pearson admitted acting with recklessness and manifest incompetence regarding four other properties, but the tribunal took the highly unusual step of rejecting his “repeated and heartfelt” admissions.
The SDT said the admissions were made “on his knowledge of current conveyancing practice and hindsight and not on the standards prevailing at the material time”.
It went on: “The tribunal considered that the hindsight provided by the biggest financial crash in history should not impact on how one treated a single solicitor’s obligations at the material time.
“The tribunal did not accept that the duties of a solicitor before the crash extended to acting in place of the financial regulator of the Bank of England.
“It was incumbent upon the solicitor to carry out his client’s instructions in line with their best interests in such circumstances as those being presented where both lenders and borrowers were benefitting from the arrangement and it was not unlawful for them to act in this way.”
The SDT added that it was not Mr Pearson’s responsibility to be “gatekeeper and safeguard the entire line of regulation where a financial regulator existed”.
The solicitor’s profession “could not be blamed for the financial crash of 2008”, and the lenders “knew exactly what they were doing and why”.
The solicitor, admitted in 1992, set up the sole practice Pearsons in 1997, which after a merger became Turner Pearson Solicitors in 2007.
The SRA investigated his conduct in 2011 and produced one report, relating to properties 1 and 2. A further report was produced in 2018, relating to properties 3,4,5 and 6.
Property 1 involved a property bought at auction for £31,000, which was later mortgaged for £90,000, with Mr Pearson acting for buyer and lender.
In the case of Property 2, a lender specified that a loan of over £251,000 was not to be made unless a property was bought for at least £380,000; it went for £335,000. But Mr Pearson signed a certificate of title which had been pre-populated by the lender to say the price was £400,000.
With the remaining four properties Mr Pearson acted for borrower and lender where mortgages were offered on the basis of a ‘same-day remortgage’, without telling the lender that actually the money was being used to buy the properties and, in three cases, the amount lent exceeded the value of three of the properties.
The SDT found that Mr Pearson had not acted dishonestly in respect of any of the properties and regarding only one property 1 had he facilitated a transaction which bore the hallmarks of mortgage fraud – although it made no finding whether there actually was a fraud taking place.
The tribunal said the solicitor had no “deliberate motivation” for what had occurred, but he had “made errors”. His actions were not planned, although he was an experienced conveyancing solicitor at the time.
In relation to property 2, there were no hallmarks of fraud and the tribunal found Mr Pearson had made a mistake in not noticing the figure on the certificate of title. “A mistake, even a negligent one, was not necessarily misconduct,” it said.
What happened with the other four properties reflected the “highly competitive” nature of the pre-crash property market, where lenders were looking to lend “as much money as possible as fast as possible”.
The SDT said: “The tribunal considered that the lender client knew what it was doing, the borrower clients wanted to borrow and the solicitor did what he was asked. If [he] had blown the whistle, he would have been the only one to do so. The financial regulatory system allowed the mortgage market to operate in that way.”
It said the problems occurred between 2006 and 2008 and were historic, and Mr Pearson had since shown “genuine insight”. He was fined £2,500.
The SRA applied for costs of over £39,400, which the SDT cut to £20,000, reflecting the fact that “most of the allegations brought against the respondent had not been found proved”.