Mortgage Offers

When acting for a purchaser who is buying with a mortgage the conveyancer will, on the vast majority of occasions, also act for the lender. It should be noted that no commercial (as opposed to private) lender will allow the purchaser to carry out his own conveyancing. If the purchaser chooses not to appoint a solicitor then the lender will appoint their own and the purchaser will be expected to pay the fees.

The Mortgage Lenders' Instructions

The conveyancer will receive from the lender his own copy of the mortgage offer. It will be different from that issued to the purchaser and the mortgage broker in that it will contain the lenders' instructions to act on their behalf. As the offer acts as the lenders' instructions to the firm to act on their behalf it must be properly addressed to the firm and a hard copy must be received. If the offer is addressed to another firm then the solicitor cannot act until a correctly addressed offer is received.

The instructions will be in the form of a covering letter and will set out certain prerequisites for the firm to act, for example some lenders will specify a minimum number of partners that the firm must have and others will not accept firms of Licensed Conveyancers. The instructions should also state that they are supplemental to those contained in the Council of Mortgage Lenders (CML) handbook, although there are a few lenders who are not members of the council. The lenders' handbook contains a set of instructions to conveyancers which has been agreed between the members of the council and conveyancers should familiarise themselves with it. Finally, the lenders' instructions should state that they comply with rule 3(19) of the Solicitors Code of Conduct (formerly rule 6(3) of the Solicitors Practice Rules). Rule 3 states that a solicitor cannot act for more than one party in a transaction and 3.19 sets out the exceptions to that rule, one of which is that he may act for both purchaser and lender provided that both parties are aware and are in agreement. Should a conflict arise however, the solicitor must cease to act for either party.

Checking the Mortgage Offer

The conveyancer is obliged to check the offer to ensure that certain details are correct, and to report any inaccuracies to the lender. Checking the offer has been made much simpler in recent times by the introduction of a standard format which all lenders must follow. The important details are as follows:

The Address of the Property

If the address is incorrect on the mortgage offer then it may be that the wrong property has been surveyed.

The Names of the Borrowers

The lender will have carried out credit checks against the borrowers prior to agreeing to lend. Obviously it is important that they have searched against the correct names. Careful attention should be paid to the spelling of the names, even a seemingly minor spelling error could produce an entirely false credit search result. The people who are buying the property must be the same as the people named on the mortgage. There cannot be a person or persons who are parties to the mortgage but not joint owners, or vice versa.

The Purchase Price

The price stated in the mortgage offer should be the same as that stated in the transfer deed, unless the lender states specifically in the offer that differences need not be reported. No lender will allow a difference of more than 5% of the purchase price to go unreported. The reason for this is to guard against borrowers artificially inflating the price of the property in the mortgage application so as to encourage the lender to lend more than it is worth, or a higher percentage of the total price than they would generally lend.

Term of Lease, Ground Rent and Service Charge

Obviously this is applicable only to leasehold properties. The valuer will take the remaining lease term, annual rent and possibly the estimated annual service charge. Where these details appear in the offer the conveyancer should check that they are correct.

The Special Conditions

At the end or sometimes at the beginning of the offer there will often be a list of special conditions. Some conditions are directly specifically at the borrower but some are for the conveyancer to deal with, or at least it will be necessary for the conveyancer to check that they have been satisfied prior to exchanging contracts.

These conditions can cover any number of things, such as ensuring that any existing mortgages are redeemed, supplying copies of identification documents, supplying the lender with survey reports on problems picked up by the valuer (this would be for the borrower to arrange) or obtaining undertakings to from the borrower for works to be carried out post completion.

One condition that does arise from time to time, but that should not, is a condition obliging the conveyancer to pay off unsecured borrowing, such as loans or credit cards. The obligation should be on the borrower only and the conveyancer should advise the lender that he will not be complying with the condition. He should advise that such an instruction falls outside the scope of rule 3.19 of the Solicitors Code of Conduct and as such he is not allowed t continue to act for both parties in the transaction if that instruction is not withdrawn. He should not then proceed until he has received the lenders' further instructions.

The Amount to be Advanced

Care should be taken when checking the amount which will be received from the lender. The amount to be borrowed will be stated in section 3, however there may be deductions from the sum. These will be noted in fees section (section 8). Look out in particular for such things and CHAPS (or telegraphic transfer) fees, fees charged when the borrower is not taking insurance through the lender and arrangement fees. Some fees will be added to the loan, some will be paid prior to issue of the offer and others will be deducted from the advance. If the amount to be received is not completely clear then it should be confirmed with the lender prior to exchange.

The Certificate of Title

The Certificate of Title (sometimes called the Report on Title) is a certificate given to the lender by the conveyancer to confirm that the title is a good an marketable title and that the lenders' instructions, both in the offer and in the CML handbook, have been complied with.

Though in the actual document you will sign it will not be set out in full, by confirming that their instructions comply with rule 3.19 of the Solicitors Code of Conduct (or some lenders may still refer to rule 6(3) of the Solicitors Practice rules) the lender is advising that they expect the terms contained in the approved form of certificate annexed to rule 3 to be complied with. This certificate is of course restricted to legal matters and does not act as a warranty as to the physical state of the property.

Each of the lenders have their own style of certificate. There are certain details which must be completed in all cases (property address, borrower's name, conveyancer's bank details etc) but the certificate should be checked at this point to see if the particular lenders have any additional requirements such as buildings insurance details or identification documents. In addition, all certificates need to be signed by a solicitor, legal executive or licensed conveyancer as a minimum but some need to be signed by a partner.

As well certifying that the property is a good security for the loan, the certificate of title is also used to request release of the mortgage advance. Once a completion date is known therefore it should be entered on the certificate which should then be forwarded to the lender. It is generally a good idea to fax the certificate as well as post it since you will then have proof of delivery on a given day. Each lender requires a specific period of notice to release funds in time for the completion date, ranging from 24 hours to 7 working days. The notice period should be stated in the mortgage offer and whilst lenders will often deal with the certificate in a shorter time if asked, they are not obliged to do so and will not be liable for any losses resulting from a late completion if they are not given the notice they have requested. This must therefore be taken into consideration when arranging a completion date.

The Mortgage Deed

The mortgage deed is the document which is used to register the lenders' charge over the property. It must be signed by all borrowers, correctly witnessed and held on the conveyancer's file prior to the conveyancer using the mortgage advance. When asking the borrower to sign the deed the conveyancer must explain the nature of the affect of it to him, i.e. that the lenders will have a legal charge over his property which will enable them, should he default on the repayments of the loan, to take possession of the property and sell it to recover the outstanding balance.

Unsecured Loan Agreements

Some mortgages come with an unsecured loan agreement attached. This enables the lender to lend more than 100% of the value of the property, for example it may lend 95% by way of a mortgage and 10% by way of a personal loan. The loan is attached to the mortgage insofar as it will be offered at the same rate as the mortgage as long as the mortgage is maintained. Should the mortgage be redeemed however the loan would revert to a normal personal loan rate (usually much higher). The loan can of course be redeemed along with the mortgage. If the borrower defaults on the loan payments the lender is not entitled to possession of the property since the loan is not secured. This of course does not affect the lender's rights in the event the borrower defaults on the mortgage payments.

The unsecured loans are regulated by the Consumer Credit Act 1974 (CCA) and as such certain procedures need to be followed. The borrower is entitled to a "cooling off" period of 5 days. The borrower is asked to sign the agreement which is then returned to the lender (sometimes via the solicitor) and the lender then has seven days to countersign the agreement and return it to the borrower. On receipt the borrower has five days in which to change his mind and cancel the agreement, after which it binding. That said however, funds do not need to be requested from the lender immediately and if the purchase did not proceed at all then the borrower would not have to take the loan.

Even though some firms choose to take the risk, the cooling off period cannot by law waived, even by the borrower. The logic behind this is that, say he is being pressed to complete before the cooling off period expires, some lenders (Northern Rock is one) may release the funds to the solicitor early but that is on the basis that should the borrower exercise his right to withdraw during the cooling off period the lender will expect (and have a right to expect) the solicitor to return the funds, irrespective of whether he is still holding them or has used them for the purchase. Some firms will ask the borrower to sign a waiver, giving up his statutory right to a cooling off period, but the whole point of the law is that the borrower is entitled to make a decision about the loan and then reverse it - the signing of a waiver therefore does not add anything to the loan agreement which will have already been signed.

The solicitor would of course be entitled to pursue the borrower to recover the loan money but would in the first place have to repay the lender out of his own funds. Another rule of the CCA is that neither solicitor nor lender may contact the borrower to discuss the loan during the cooling off period so as to avoid undue influence. Advising a borrower to waive his rights must surely breach this rule therefore a well advised client, when being sued for money in respect of the loan, may decide to make a counter-claim against the solicitor for negligence. I should point out that I am not experienced in litigation and cannot comment as to whether such an action would be likely to succeed.

There is even a school of though which says that contracts should not be exchanged during the cooling off period since this could be considered undue influence the borrower will have a statutory right to cancel the loan agreement but knows that should he do so he will breach his contract and be liable to pay the seller compensation. So far I have come across three lenders who offer CCA regulated loans along with their mortgages, and each has a slightly different procedure. The three are as follows:

Alliance & Leicester

Alliance & Leicester do not ask the solicitor to become involved at all in the procedures relating to the loan. They will advise in the mortgage offer that there is a loan attached and that you should not exchange contracts until they have confirmed in writing that the formalities have been completed. They will send the loan agreement directly to the borrower and will advise the solicitor in writing once the cooling off period has expired. They will automatically release the loan along with the mortgage advance.

Coventry Building Society

The Coventry includes the loan agreement with the mortgage offer and asks the conveyancer to forward it to the client. They also enclose another form in which the client can specify whether they want a 5 day or a 15 day cooling off period. On receipt from the client the forms must then be forwarded to the Coventry They will not release funds until the cooling off period has elapsed. If the form advising the length of cooling off period required is not included they will assume 15 days.

Northern Rock

Northern Rock enclose with the mortgage offer copies of the unsecured loan agreement. They enclose a copy marked Original and further copies (one for each borrower) marked First Copy. They also supply a sheet entitled Addendum to Instructions. All these must be forwarded to the borrower, with the advice that the addendum and First Copy (or copies - one should be sent to each borrower) are for their retention while the Original loan agreement is to be signed and returned. The conveyancer must then return the signed Original to Northern Rock. It is well worth sending this special delivery as in my experience it can be over a week before they will admit to having received it. Also they will work from a fax. They say in their instructions that the loan agreement must be sent along with the certificate of title, however they will accept it earlier. Following receipt of the Original agreement signed by the borrower they will issue a copy known as the Second Copy to the borrower. On receipt of this the cooling off period begins and the borrower has 5 days in which to cancel the agreement. After the expiry of 5 days the loan monies can be used. Northern Rock will send the funds before the cooling off period has expired, but at the conveyancer's risk. It is worth noting that Northern Rock give the borrower the option to initially draw down only part of the unsecured loan. In the event that the borrower chooses this option the conveyancer will receive less than expected on completion. It is therefore worth checking prior to exchange.

Occupier Consent & Waiver Forms

If the property is to be occupied by the borrower along with another person over the age of 17 who is not a joint owner, such as a spouse, partner, grown up child or lodger, then that person will need to sign a consent & waiver form in favour of the lender. This waives any rights the occupier might accrue in the property or in the equity in favour of the lender, so that the lender may evict him should they need to repossess. The lender will have their standard form which should be used. Some lenders require the form to be signed in the presence of an independent solicitor. Even where they do not, when being asked to sign the form the conveyancer should advise the occupier that he is signing a legally binding document and should seek independent legal advice (though there is no reason for the conveyancer to insist if the occupier chooses not to). The conveyancer cannot of course advise him since this would create a conflict of interest between lender and occupier.

Deeds of Guarantee

Sometimes the lender will ask that the borrower appoints a guarantor, ho will be responsible for repaying the loan should the borrower fail. If this is the case the conveyancer will need to ensure that the guarantor signs a deed of guarantee, which will be in the lender's standard form. This deed is vitally important, since without it the lender cannot force the guarantor to pay. Many lenders will insist that the deed of guarantee is signed in the presence of a solicitor, which cannot of course be the conveyancer who is acting in the purchase because of the conflict of interest this would create. Even when the lender does not insist the conveyancer should point out to the guarantor that he would be wise to seek independent legal advice.