Monday, August 19, 2013

Law Society say consultation results on separate legal representation for buyers & mortgage lenders ‘to be close contest’

The Law Society of Scotland has announced that consultation results from the Survey on the issue of mandatory separate legal representation for buyers and their mortgage lender in property transactions show the jury is out on whether its members will vote for change at a special general meeting in September.

There were 279 responses from solicitors, consumer interest organisations such as Which?, and other interested parties including banks and building societies and the Council of Mortgage Lenders (CML), on a proposed rule change which would mean that borrowers and lenders would each need to have their own solicitor. Currently the same solicitor can act for both buyer and lender.

The responses, which have been published today Monday, 19 August, showed 49% in favour and 51% against the proposed rule change as it was drafted in the consultation document.Alistair Morris

Alistair Morris, Vice President of the Law Society of Scotland, said: "Given the many changes that have happened in the property market, this has been an essential debate to have. For most of us buying a home is the biggest purchase we will ever make and it's important that people get the legal advice they need, that their interests are protected and that solicitors are not compromised in representing their clients."

At a Law Society annual general meeting in March 2013, solicitors voted in principle to remove the current exception to its conflict of interest rules and bring in mandatory separate representation in property transactions. As a result the Society must now bring forward a proposed rule change for its members to vote on at a special general meeting (SGM) on 23 September.

Morris said: "The high number of responses shows the level of interest in this issue and, while no clear consensus has emerged, the consultation has given us very useful feedback. This will allow solicitors to consider the issue further in advance of the SGM and take into account the views of their fellow practitioners and other stakeholders who have a key interest in this debate.

Mr Morris said that appetite for a change to the existing rules has grown in recent years.

He said: "There has been tremendous change within the property market since the financial downturn and as a result many lenders have introduced new requirements on solicitors representing the borrower, which has led to a significant move away from the 'execution only' approach of the past. Many solicitors now believe that the interests of the buyer client and their mortgage lender are no longer in alignment so, in order to represent their clients fairly and with true independence, there should be mandatory separate representation in both commercial and residential property transactions.

"It is the buyer who pays the fees and should be able to have absolute confidence and trust that their solicitor will put his or her interests first, rather than those of their mortgage lender who can have different requirements which need to be met."

Morris added: "We have actively sought the views of key stakeholders outwith the legal profession and are keen to engage with the lenders and their representative body to ensure that if there is a vote for change, this would be managed effectively to ensure that there would be minimal impact on Scotland's homebuyers.

"We were very pleased to get responses from Which? and the Council of Mortgage Lenders. Which? has stated that it believes the consumer should be better informed to  make the decision on whether they should have a separate solicitor from their lender and that there should be further discussion around solicitors only being able to act for banks on an 'execution only' basis, ie not providing legal advice to the bank. CML is opposed to the move, although some of their members are already practising separate representation.

"We are well aware of the fears that have been raised around potential for delay or possible increased costs for the borrower   While these issues have to be considered, we have calculated that any potential cost increase would be a small percentage at around 0.1% of the overall price of buying a new home* - if indeed the lenders do decide to pass on costs to their customers.  It's worth noting that, in the Republic of Ireland, where separate representation is mandatory, banks are legally prohibited from passing on their legal fees to purchasers.

"In response to the feedback we have received, the rule as currently drafted  is likely to be modified. However, prior to going before members at the SGM next month, it will be considered by the Society's Regulatory Committee and Council, before a recommendation is made.  Given the strong views that have been put forward during the consultation and the importance of the issue, it is vital that our members are as informed as possible and we would urge them to vote at the SGM ."

Solicitors voted at an AGM in March 2013 in favour of the principle of a change to the Law Society of Scotland's conflict of interest rules. Currently there is an exception to the conflict in interest rule, which prohibit a solicitor from acting for more than one client, to allow solicitors to represent lender and borrower clients in residential property transactions. If approved by the Law Society's regulatory Committee and Council, a draft rule removing this exception will be presented to solicitors at the Law Society's SGM on Monday, 23 September 2013.

The data was analysed in a number of different ways. Assessment of individual responses show 47.5% are in favour while 52.5% against. Responses from organisations showed 59.1% are for a change to the rule, while 40.9% are against.

* 0.1% is based on an average purchase price of £148,174 and the assumption that lenders' costs would be approximately £200, based on what some lenders already practising separate representation are charging.

For more information about separate representation and the proposed rule change see the website:

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