Why Separate Representation is Essential
Before getting into the detail of the “Sep Rep” debate I would ask you to remember what happened to the Re-Mortgage Market. That work has been systematically removed from the majority of the legal profession. Not only that but the client is, in practice, left totally unrepresented for the granting of a security over their home, something that should be regarded as one of the most serious legal transactions they ever undertake.
As you will be aware the Law Society of Scotland are having a vote on Monday 23rd September on the issue of Separate Representation. If you have already decided to vote FOR Separate Representation then that is great. Please make sure you get your vote in on time.
If you have decided to vote AGAINST Separate Representation, then I hope after reading this you may re-consider and vote FOR. It was interesting reading the sample responses to the recent survey that many of those against Sep Rep actually put forward very good arguments in favour of the case FOR!
Background/History
The conflict of interest rules would properly prohibit any solicitor from acting for both borrower and lender. It is only an exception for expediency which has allowed Solicitors to act for both in creating securities over residential property. It is worth remembering that originally the exception to the rule was put in place at a time when Lenders kept open Panels and allowed any solicitor registered with the Law Society of Scotland to act for them. It is a very different landscape today.
In addition the Lenders have increasingly been seeking to recover costs and damages from Solicitors whenever there is fraud or money laundering or even where the security requires to be called up. This has been regardless of whether the Solicitor has actually been guilty of any negligence.
Conflict of Interest
The AGAINST argument is that surely there is no conflict as the interests of the Borrower and the Lender are the same. The interests of Borrower and Lender may be similar but nowadays there is too much room for conflict.
· The Lender is a client to whom you cannot send Terms of Business.
· The Lender is a client who dictates the Terms of Business to you.
· The Lender is a client who will try and sue you on any excuse.
· The Panel system directly affects the ability of Solicitors to earn a living, so Solicitors are reluctant to do or say anything which may put this at risk. They are compromised.
· There can be information the Client does not wish the Lender to know but the Solicitor is obliged to tell the Lender who is their other Client. There is conflict.
· The Solicitor can always resign from acting. Really? Just before settlement?
· You may as well resign from the Panel.
It is clear that Solicitors are compromised by acting for both Borrower and Lender.
There is also a clear conflict of interest.
On any sensible risk assessment no Solicitor should even want to act for a Lender.
Difficulties in having two Solicitors
It also argued that having two Solicitors in every transaction will create difficulties and add to costs. Well it is difficult anyway. As the number of Solicitors on Panels has been reducing, Separate Representation is already happening in an increasing number of transactions, and we manage to get by. Personally I would rather have difficulties and not be acting for the lender than have difficulties and still act for the Lender. It just makes sense.
Costs to Lenders and Borrowers
Yes, Sep Rep could mean more costs for Borrowers, but ridiculously low legal fees for conveyancing has meant the profession has for years been underwriting the cost of providing the Lenders with securities. That is not sustainable. It is also not the issue.
In my view costs to the Lenders are what this whole debate is really about. The Lenders have decided they need to do due diligence on every Solicitor on their Panels. This costs them a huge amount in time and money. They are creating work for themselves unnecessarily but we will never persuade them to do otherwise. They want to save costs so logically they will only continue to reduce the Panels which is going to adversely affect an increasing number of Solicitors. In turn, in practical terms, this will continue to reduce the choices of lawyer available to the public. You may be on the Panels today and think you are OK, but you may not be on the Panels tomorrow.
Separate Representation will mean the Lenders, for the first time ever, will have to pay for the legal services provided to them. It is likely that to compete with each other they will need to offer this for free, just as they do in the re-mortgage market. But that means they will have to underwrite it. They may try and pass on these costs to the Borrower, but legislation could prevent them from doing so, as apparently is the case in Ireland.
It is obvious therefore that the Lenders may face costs they currently do not have. Could this be the real reason why the CML is so against Sep Rep?
In fact I have letters from both Lloyds Banking Group and from Woolwich/Barclays confirming they have no difficulty with Sep Rep. I therefore see no reason why we should not:-
1. Bring in Sep Rep
2. Bring it in immediately
Vote AGAINST – the terms Turkey and Christmas come to mind!
· It could be years before we get another chance to vote for Sep Rep.
· Solicitors will be in the pocket of the Lenders.
· Solicitors will continue to be compromised and in conflict.
· Solicitors will continue to be at high risk of being sued by Lenders.
· Solicitors will continue to be thrown off Panels.
· Ultimately all conveyancing could end up in the hands of just a few very large firms.
Vote FOR - Change the future of the profession and conveyancing for the better!
· This could be our one and only chance to go FOR it.
· Get rid of the Lender Panel system as it currently exists.
· Get rid of some of the Lenders’ anti-competitive practices.
· Take the conflict out of conveyancing.
· Start acting in the best interests of the Purchaser/Borrower.
· Maintain the widest possible choice for the consumer.
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