Why is it that the solicitors are always the ones who hold things up?
The legal process can be extremely frustrating, as delays frequently occur, but arguably it is the most important and complex part of the transaction. In an age of instant communications, when we expect everything to be done immediately, we have to remember that conveyancing work is still done on paper and sent by post. Complications in conveyancing can crop up easily as no transaction or borrower is the same, and these queries will inevitably take time and expertise to resolve. Title insurance does tend to speed transactions up. However, the unfortunate reality is that many solicitors’ firms still do not understand and/or are afraid of title insurance.
What is title insurance?
In short, title insurance is a one-off premium paid to make sure the insured parties have correct title to the property being purchased. If, subsequently, conditions come to light that put the question of title in doubt, then the insurance policy covers any loss that is suffered and the insurers take any legal action necessary to put the matter right.
Because title insurance (usually) indemnifies the lender and borrower against any defects in the title to the property, it can speed up the conveyancing process considerably as it cuts out time consuming local authority searches.
What sort of circumstances could cause defects in title to occur?
There are two main legal considerations for lenders. First, will the person to whom they are lending money really own that property? Second, will the property really be worth the money that it is changing hands for? In the first of these considerations, several things could affect the true ownership of ‘ or ‘title to’ ‘ the property.
Unbeknown to all parties, the vendor may not be the legal owner and so cannot actually pass over the true title to the purchaser. For example, there may be forged sale documents or wills in the past that subsequently come to light. Or, the solicitor handling the conveyancing may have been negligent in some aspect that affects the title.
All these circumstances can take a long time to sort out, but title insurance would guarantee the insured parties suffer no monetary loss. A few examples of what could subsequently lower the value of a property would be unknown covenants over it, rights of way or old underground workings that may cause subsidence.
What other matters could cause legal delays?
Small inconsistencies between the applicant’s details and those held at the Land Registry can often cause major hold-ups. For example, an application for a mortgage loan to purchase a property may quote a street name and number, but the Land Registry entry may still quote a plot number and the name of the property development.
Alternatively (more commonly in second-charge loans), the property owner can be registered in one name, but the applicant has quoted a different name. This can be because the owner’s first Land Registry entry was their original non-English name and they have subsequently come to use a more Anglicized version. These sorts of issues are beyond the control of the mortgage adviser, but knowing the background could help when explaining any delays to the client.
Are there any other legal matters that advisers should be aware of?
There are two other main legal topics: money laundering ‘ where criminals use property transactions to legitimise money gained by illegal activity ‘ and fraud ‘ where dishonest parties to a property and/or mortgage contract obtain funds by false pretences. In both these cases, any suspicions must be reported immediately internally and then to the appropriate authority.
As individual solicitors always seem to cause long delays in the sale/purchase process, should brokers recommend that clients use the panel solicitors of lenders? Will this help speed things up?
The main benefits of using a panel firm are that lenders normally pre-agree a set of service standards with the firm and negotiate a set legal fee that, in many ways, could be cheaper than that of a non-panel firms.
In addition, panel firms are more familiar with lenders’ processes. For example, a panel firm of solicitors appointed by a lender that uses title insurance extensively will usually be trained in the subject and thoroughly familiar with it ‘ whereas individual solicitors will probably not be trained to the same degree.
Why don’t lenders employ in-house solicitors to do the conveyancing work?
Not everyone is in favour of in-house legal work and some intermediaries are against it. After all, many purchasers prefer to have the comfort of using their own solicitor who has acted on their behalf before. In addition, purchasers want to feel they are employing legal experts to look after their own interests, and using a lender’s in-house legal resource may seem too anonymous.
Having said that, a lender’s in-house legal process can work well particularly for remortgages. However, for a purchase transaction an in-house lawyer is unlikely to complete the case any quicker than an external lawyer.
Gemma Reece is an in-house lawyer at SPML