By the book

Outcomes focused regulation is a relatively recent phrase in the lexicon of lawyers, but one that legal professionals will have to embrace whether they like it or not: regulating the end product rather than implementing prescriptive rules is the new frontier.

The Council of Mortgage Lenders Handbook, when first published, was a triumph, the culmination of years of hard slog and negotiation. Previously, the sets of rules were diverse with some lenders permitting some types of lending, others not. This was not in the interest of the lenders, solicitors or their clients. In the new handbook, lenders, assisted by the Law Society, among others, pulled together a common set of instructions.

The argument for common instructions is as pressing as ever, but the needs of clients and methods of practice have changed.

Some changes to the rules have crept in largely unnoticed and certainly unheralded. The Building Societies Association has recently brought out a new set of rules, strikingly similar to The Council of Mortgage Lenders Handbook. That set of instructions is a well-trodden path for most conveyancers. It is a safe haven for some, for others a six foot close-boarded fence behind which they hide when faced with a full frontal assault from the purchasing client or frustrated seller. How often have conveyancers heard the cry 'the lender won't allow it'?

The nature of the old handbook and the new rules sometimes create odd outcomes. Our profession is now effectively enforcement officer for planning permission and building regulation consent. The lender requires a certificate on title confirming no current or enforceable breaches of planning of building regulations, so solicitors must pore through planning permissions, searching the conditions or examining the information forms or preliminary enquiries. This is exacerbated by the increasing introduction of such regulations, now covering windows, electrical installations, plumbing, heating, etc.

What has this got to the do with the lender? You may well ask. The answer is remarkably little.

The justification lies in the purpose of the security. When you strip it back, the legal mortgage is only utilised if the property is repossessed. Although rates of repossession have risen, they are still incredibly low. When those properties come to the market, how many sales will falter when the buyer's solicitors discover a problem which the dispossessed owner's conveyancer failed to sort out at the time of their acquisition? I hazard a guess that you can count them on the fingers of one or two hands.

Mortgagees in possession give, quite rightly, no warranties on the property so the likelihood of the new buyer's solicitors finding anything out is very small. There is no seller to 'spill the beans' on the property information form. With some irony, the new lender's certificate on title requires the conveyancer to conduct due diligence and give a clear certificate on title, despite the lack of available evidence, and so the wheel turns.

Unnecessary rules

If one steps back further, it would be reasonable to ask what the point is of all these rules, and not a large leap to suggest that they are, for the most part, unnecessary. They lack an underlying view of cost benefit or risk analysis. If the real risk to the lender is very small, how much less is the justification for having them in the first place, particularly when coupled with the cost for the borrowers (and our profession) in abiding with them?

Highly prescriptive rules tend to suggest that lenders are risk averse but that argument does not hold water when you examine their attitude towards holding deeds. Almost all lenders dispense with holding any documents other than official copies, many requiring no information at all. It takes little maths to work out that the cost of holding pieces of paper is vastly more than downloading official copies if the borrower defaults.

How much of a leap of faith would it be for a lender to trust their conveyancer to use their professional skill and judgment in what constitutes a 'good and marketable' title? I should at this point state that I do not advocate a wholesale abolition but rather a fresh approach to the thinking behind them which will lead to a consequent adjustment in their nature and purpose.

Current rules tend to de-skill the process, reducing it to 'tick box'. They create an environment where it is easier for the conveyancer to hide behind an indemnity policy rather than apply their knowledge of the law. Conveyancers know that while most transactions contain similar elements, each one is different to every other one in some manner which leads to the inevitable conclusion that highly prescriptive rules are frequently stretched to breaking point.

Lenders have been flexing their muscle, threatening to and '“ in some cases '“ following through on a commitment to cutting down panels. Some argue that it is their right or prerogative. Whether or not that is the case, it is certainly a reality. It should surely follow that those left on the panel are treated with a greater degree of trust and respect.

The lenders, whether covered by the CML or BSA, may find that a new contract forged with our profession, negotiated through its professional body, will engender a greater degree of respect. It is always worth remembering that lenders instructing solicitors rarely, if ever, make any direct payment for those services, leaving it up to the profession to collect whatever fees they can collect from the borrower. The self same lenders require protection from the security which may only be tested when they have made poor lending decisions.

The primary core duty of a solicitor is to act with integrity. It is surely time for the lenders to recognise and reward those who do.