Separate representation: lenders worried about fraud

The growth of separate representation of lender and borrower in residential property deals has prompted the Council of Mortgage Lenders (CML) to draft instructions for conveyancers acting solely for lenders.

The move has been welcomed by a leading body representing conveyancers.

The CML has made it clear that it dislikes separate representation but accepts that it is a reality.

Lenders say they are increasingly declining to use joint representation – in which a conveyancer acts for borrower and lender – in order to reduce their exposure to fraud, despite the potential extra cost and delay entailed by using two lawyers.

The trend is expected to continue as lenders move to more restrictive panels of firms, with sole practitioners particularly isolated. Panel firms may also in time be required to be members of the Law Society’s Conveyancing Quality Scheme.

A CML working group has drafted the instructions, along with a standard letter aimed at borrowers’ conveyancers, on the premise they will “mitigate extra cost and provide guidance for solicitors”. They are currently out for consultation.

A CML spokeswoman said the council was consulting on the wording and did “not expect separate representation to become widespread throughout the residential house purchase market”.

She expected it to be confined to higher-risk transactions, those involving specialist lenders, where there is a conflict of interest, and where “the borrower is desperate to use their own conveyancer rather than the lender’s”.

Eddie Goldsmith, partner at Liverpool law firm Goldsmith Williams and chairman of the Conveyancing Association, which represents some of the largest conveyancers, law firms and networks of firms, welcomed the CML guidelines.

He said: “I think that every conveyancer would welcome a set of draft rules. It’s absolutely vital in order to cause the least disruption to a conveyancing transaction that the lender’s and the client’s solicitors know what the rules – their limitations and obligations – are.”

Mr Goldsmith said he understood that some lenders were moving in the direction of separate representation because it gave them the “comfort” of choosing their own lawyer. He cautioned that “as an industry we would say we are concerned about potential cost and delay” that might result.

But he observed that “the conveyancing world is changing and separate representation may be one of the things that will come out of the new thinking”.

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