After the lender sends a property mortgage offer letter to the borrower, it also sends instructions to its conveyancing solicitor to act for it with regards to the new mortgage. These lawyers will be sent a number of documents including instructions to act, sample mortgage deeds, and other documents relevant to the conveyancing transaction.
It is common for the buyer’s solicitor to act both for the buyer and lender. This is because the objective of both lender and the borrower are the same, i.e. to ensure that the property is structurally safe, has good legal title. However, there also exists a risk of conflict of interest. Under such circumstances, the conveyancing solicitor acting for both buyer and lender must be aware that he must act in the interest of both parties. Engaging a common conveyancing solicitor for the lender and the buyer saves time and money, since the same work is to be done for both parties.
The Lender’s Handbook
Lenders engaged in providing loans on residential properties have adopted ‘The Lender’s Handbook’ that is endorsed by the Council of Mortgage Lenders. This handbook includes a set of standard instructions and is divided into two parts. Part I applies to all lenders in general, and Part II is applicable to lenders in instances where they differ from Part I. This handbook is updated from time to time to incorporate changes. An up to date version of this guide can be found at the Council of Mortgage Lenders website, www.cml.org.uk. A conveyancing solicitor acting for the lender should make sure that he follows all instructions set in the handbook.
The BSA Mortgage Instructions
The Building Societies Association or BSA has also set up a series of instructions for its members. Use of this instruction guide is voluntary by members, and members who are a part of both CML and BSA can use the CML handbook. The instructions can be sought from the Building Societies Association website, www.bsa.org.uk.
Conflict of interest
If the buyer’s conveyancing solicitor, who also acts for the lender, finds out that the terms of the mortgage are unacceptable or are detrimental to the interest of the buyer, he should not continue to act for either if the issue cannot be resolved to the satisfaction of both. If the conveyancing solicitor comes to know that the buyer will be in breach of the terms of the mortgage offer (for example, if the sale price has been misquoted to the lender), the lender must be told about the breach.
Duty of confidentiality
In the case of conflict of interest between the buyer and lender clients, the solicitor (acting for both) should inform the buyer about the conflict, only after permission is sought from the lender. Failing to seek permission shall make the buyer liable for breach of confidentiality. In such instances, the conveyancing solicitor should immediately cease to act for the lender.
Reporting to the lender
Irrespective of the fact that pre-contract investigation was done by a common solicitor or a separate solicitor, it is important for the lender to ascertain that the property has adequate security for the loan and has a good title. The form of certificate approved by The Law Society and the Council of Mortgage Lenders is used by the lender’s solicitor.
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