Laying down the law

The need for advice on the vast amount of mortgage products available is becoming even more essential, as borrowers flounder under the sheer number and variety of products on offer. Brokers are also in a similar position as they deal with these products on a daily basis and have come to rely increasingly on technology in order to keep on top of the near-constant changes.

Therefore, it is perhaps not surprising technology is viewed by many as almost the only way of harnessing the huge advantages of speed and efficiency in the quest for the ultimate deal for clients.

The problem for brokers now is not being able to gain instant access to the thousands of products available, but what to do when technology goes wrong.

At the moment, the main use of technology in the mortgage process is sourcing mortgage products, making this a hugely important area as just over half of all mortgages are now sold through intermediaries. However, more lenders are also starting to accept electronic applications, and this is expected to increase significantly as brokers feel more at ease with the technology available. Then there is the introduction of digital signatures.

While all this is absolutely fine when it works as it is supposed to, you also need to know what happens if something goes wrong. For this reason it is worth taking a look at some of the key legal issues surrounding technology within the mortgage market and how it might affect brokers.

Sourcing and the law

One of the most common technological applications is sourcing what is the right mortgage for the client. Sourcing systems have been around for some time and a quick search on the internet shows how many there are out there. While they are now regarded by brokers as an almost invaluable tool, what happens if there is a problem with the mortgage they select or if the client feels seriously aggrieved with the products the systems’ purport to being available? Essentially, what is the status of sourcing systems with regard to the law?

The important issue is whether they are regarded in law as being just another distribution arm for the lender, or whether they represent the lender as an agent, and therefore need to accept responsibility for products withdrawn or misrepresented. Unfortunately, there is little or no case law on the liabilities of mortgage sourcing companies.

But, the position is quite simple. The company is effectively a distribution arm of the lender concerned and any product that is offered through them is an ‘invitation only’. In other words, they are not the owners of the product and so if the lender withdraws the product without the knowledge of the sourcing company, or even if the sourcing company is slow to withdraw a lender’s product, then there is little likelihood the sourcing company could be held out as an agent of the lender.

Even without an appropriate disclaimer (which every self-respecting sourcing company has on their quotation), a court of law could not find a mortgage company liable as an agent for the omission or error of the lender. However, caution dictates that if you are a mortgage sourcing company ‘ or if you use one ‘ you should revisit your disclaimer on screen and make sure it is sufficiently clear.

This position is not any different for the much-heralded common trading platforms (CTPs) that aim to accept applications online. Once again they are, in theory, simply acting as a distribution arm of the owner of the product ‘ but as always, in law nothing is ever 100% certain.

Sign of the times

Another issue exercising minds within the legal profession at the moment is the question of electronic signatures and who would be responsible when (and it will happen) a signature is used fraudulently. Fortunately, it is not thought brokers will be held responsible for misuse unless they have deliberately done so, but it will be worthwhile to know the likely problems and the courses of action available to the client.

The key problem, of course, is solicitors do not understand how digital signatures are going to be used within the context of electronic conveyancing, and there is a great deal of misunderstanding surrounding the whole question of digital signatures.

At this early stage of their introduction, no-one quite knows how widespread digital signatures will become, or what they will be commonly used for. But it is the objective of the Government to revolutionise the conveyancing process, so we can assume digital signatures will be an essential part of this process and their usage will become commonplace.

The Government also believes solicitors and licensed convey-ancers are likely to be asked by clients to sign documents on their behalf digitally ‘ this is the reason concern is now being expressed. In law, the position is reasonably clear in terms of fraudulent use of signatures. The victim of fraud can still overturn a fraudulent act even if it causes loss to an innocent victim. In other words, if one party fraudulently sells a piece of land to a third party, the original owner can recover the property to the detriment of the buyer. If the same principle is applied to the fraudulent completion of a mortgage application, then an innocent party can always apply to court for restitution of the position before the fraud was committed.

Who is responsible?

While that may be clear, when it is applied to digital signatures what is the position of the custodian of the digital signature ‘ out of whose office the fraud was committed?

If someone breaks into the solicitor’s office and uses the computer to access a client’s digital signature fraudulently, will the solicitor be responsible for the loss and be made to pay compensation to an aggrieved party?

There is no answer to that question at the moment, but the likelihood is that there will be onerous security measures on such custodians and they could be held responsible if they failed in upkeeping those measures.

In reality it will be a brave solicitor or conveyancer who will take on that responsibility unless they have the resources to do so properly ‘ and ensure the fees charged reflect the additional risk. But at the moment it is a case of waiting for more developments in the future.

The world is changing rapidly and IT systems are becoming increasingly sophisticated. When a good proportion of lenders can deliver data electronically to their complete distribution network and accept and underwrite electronically signed mortgage applications online, then the whole question of liability may need to be revisited. Until then caution and disclaimer is the byword.

Eddie Goldsmith is a partner at law firm Goldsmith Williams Solicitors

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