SPECIAL FEATURE: One lawyer, two guvnors
Eddie Goldsmith, founding partner at Goldsmith Williams, defends the case for one lawyer, two guvnors in bridging cases.
“Apologies for alluding to the title of the recent West End Hit with James Cordon but it seems to me that there is an appropriate twist on the name of the play when we think about whether it is possible for lawyers to act for both lender and the borrower in bridging cases and what the issues surrounding that may be.
“It is a particularly topical argument at the moment – there are lots of differing views in the press at the moment on this just as there are and always have been differing views on lawyers generally.
“From the “I hate solicitors with a vengeance “ camp to the “we use our solicitors to sniff out bad deals” camp - both of course have every right to their views but it is worthwhile spending a little time to see what role solicitors have in bridging to see if there is a middle road which would benefit everyone.
“I would like to deal with the two principal areas of concern for lenders in bridging cases – those of questions of title and conflict of interest.
“Let me deal with the easiest of those first -that of title: whether a lawyer is acting for just the lender or the borrower or both their duty in terms of examining title for one or both remains the same.
“They will have a duty to examine title on behalf of both and ensure that both have good title to the property for their particular objectives - the borrower to own the property and enjoy it as they so wish and the lender to have a marketable title so that in the event of the borrower defaulting then the lender will have recourse to it for the purposes of recovering their outlay.
“In the mainstream market this happens in case after case with no endemic issues other than sometimes the quality of the solicitors dealing with it.
“Again -when acting for both the lender and the borrower the lawyer has to have regard to the interests of both parties and again time and time again lawyers in the mainstream market deal with this in a satisfactory manner and discharge this duty.
“The reason for this of course is that by and large the interests of both the lender and the borrower are the same.
“They both wish for effectively the same - that the title is fit for each other’s particular purposes.
“Of course from time to time the lawyers either come across something or are told something by the borrower which flags up a conflict (the borrower telling the solicitor that their circumstances have changed and the solicitor considering it material enough to have to inform the lender).
“In that case the lawyer will deal appropriately and in accordance with their professional obligations and very often withdraw from the case concerned.
“In bridging I can hear you say it is very different. In bridging the interests of the borrower and the lender are different.
“Yes the borrower wants the property for his or her requirements and yes the lender wants a marketable title but the lender additionally wants to make sure that the borrower clearly understands the particular nature of a bridging loan so that there can be no risk of difficulty in recovering their outlay in the event of the borrower defaulting.
“This is absolutely right and therefore it needs an examination of how does a lender look to ensure that this happens.
“In separate representation cases the lender has the "comfort" of knowing that the borrower has their own solicitor who no doubt will discharge their duty to their client by advising them of the nature of the transaction - the risks and costs involved and as importantly what will happen in the event of default.
“We are now I think getting to the real meat of this argument. Can a solicitor acting for both parties discharge that particular duty?
“I see no reason why not - provided the solicitor has the processes and procedures in place to do so.
“This duty is discharged by clearly explaining all these risks to the borrower and then recording this -either in person or in writing or in speaking to the client- or a combination of both.
“I have been around in the legal industry long enough to remember when it was good enough to see the client in your offices - pick out what you thought was the relevant issues for them to understand and send the client on their way - without any follow up documentation and probably without any real understanding of the legal gobbledegook that you have just spouted and they found incomprehensible.
“No matter in those days as clients were generally more respectful and compliant and the world was simpler and less hurried generally.
“These days of course a solicitor would be fool hardy (although I expect many of them still do) to send the client away without any follow up and would be hard pushed to prove what they said if they could not produce a report or written confirmation of their advice.
“So really face to face in isolation these days may not be good enough. The client not only has to be told what is important but there has to be evidence that they understood and accepted the risks involved.
“That obviously is best done by a full report which the client acknowledges in writing. Better than that would be evidence of any conversation whether face to face or by telephone.
“Many solicitors these days have the facility to record telephone conversations (as we do) and to be able to record a conversation with the client and to back this up with evidence that the client not only received written advice but signed to say so in my view is compelling evidence of a solicitor having discharged their duty to the client in this regard.
“Of course we all know that clients have strangely short memories when it comes to remembering advice they have been given and we now have Claims Management Companies who are in business to “assist” clients in throwing up challenges and denials.
“But when faced in court with evidence that the risks were clearly spelt out to the client who accepted those risks I really do not see how a lender’s position is better where the client is separately represented.
“If anything there is an argument that the lender is better protected in that situation - because the solicitor can clearly show that the client did understand and consent to those risks - rather than having to review and rely on what the clients own solicitor (who may not have been so careful to evidence the advice).
“Based on the premise that any solicitor which the lender would be happy to have act for them and also the borrower needs to be clear in what needs to be done and ensure they can show robust evidential compliance; then it seems to me that the inherent conflict of interest in acting for both lender and borrower in bridging cases can be discharged.
“As in mainstream there is always the chance that something will crop up in the course of the case which turns the conflict from inherent to actual and then of course it is expected that the solicitor would decide whether they could continue to act for both or either party.
“Plus ca change from the mainstream. What is ultimately important for the lender is to ensure that not only are they represented by a trusted firm of lawyers but that the borrower receives the right level of advice on their obligations.
“It is my view that joint representation on a restricted panel model not only provides both clients with the right level of advice and protection but taking into account fraud prevention measures it could be hit in the bridging market in the fullness of time – just like One Man Two Guvnors!”
- EXCLUSIVE: PMS adds Manchester to panel
- Perspective acquires Financial Connection
- Skipton ups BTL LTV to 75pc
- FSCP: MMR doesn’t protect mortgage prisoners
- LV= reports 20pc profit growth
- Homeowners rent when they can’t sell
- FSCP: MMR should scrap fully advised proposals
- Twice as many prefer Serious Illness to CI
- Enness appoints head of commercial finance
- What made the nationals: sponsored by PressChoice
- DIY costs people £169m to fix
- Mortgage credit conditions tighten again
- Brokers under pressure due to money laundering checks
- Bridgebank completes loan in five days
Have Your Say