2. Conveyancing Accounts and Other Accounts Flashcards
What is a Mortgage Advancement?
What is a Mortgage Redemption?
- A mortgage Advance is the money the lender has agreed to lend the buyer.
- A mortgage is redemption is what the seller must repay the lender when they sell the property - any money still payable on the mortgage.
When a firm is working for both the lender and borrower in a property transaction, and they receive the mortgage advancement to hold on behalf of the lender until completion, what are the 2 options for recording this?
- Operate 2 separate client ledgers (one for the borrower and one for the lender)
- Operate 1 client ledger, just for the borrower, but include the relevant details of the lander and any mortgage transactions in the details column. This is normally used as simpler.
If the borrower is paying for both their own legal fees and the lenders, how is this recorder?
Depends on the method used to record the mortgage advancement:
1 - 2 Ledgers (one for borrower and one for lender)
The firm records both the profit costs and VAT for each in their respective client ledgers. However, the lenders charges can then be transferred to the borrowers client ledger to show that the borrower will be paying for both sets of charges.
- 1 Client Ledger for Borrower
The firm should record both sets of charges on the same ledger, but as separate entries, clearly labelling the lenders charges in the details collum.
What are the accounting journal entries for the receipt of a mortgage advancement if the method of using 2 separate ledgers is used?
How is the advancement then transferred to the borrowers ledger?
To Record the Receipt of the Mortgage Advancement
Credit Entry - Lenders Client Ledger, Client Collum
Debit Entry - Cash Sheet, Lenders Client Collum
To Transfer the mortgage advancement from the lenders ledger to the borrowers ledger on completion date
Debit Entry - Lenders Client Ledger, Client Collum
Credit Entry - Borrowers Client Ledger, Client collum
When the firm has recieved a mortgage advancement for the lender, and have decided to use the method of 2 separate client ledgers, what are the journal entries for billing both clients, and then transferring the bill to the borrower?
To Bill the borrower
BILL Debit Entry - Borrower Client Ledger, Business Collum Credit Entry - Profit Costs (only has business collum) VAT Debit Entry - Borrower Client Ledger, Business Collum Credit Entry - VAT Ledger (only has business collum)
To Bill the Lender
BILL
Debit Entry - Lenders Client Ledger, Business Collum
Credit Entry - Profit Costs (only has business collum)
VAT
Debit Entry - Lenders Client Ledger, Business Collum
Credit Entry - VAT Ledger (only has business collum)
To transfer chargers from the lender to the buyer
Credit Entry - Lenders Client Ledger, Business Collum
Debit Entry - Borrowers Client Ledger, Business Collum
What are the accounting journal entries for the receipt of a mortgage advancement if the method of using 1 borrower ledgers is used?
Credit Entry - Borrowers Client Ledger, Client Collum
Debit Entry - Cash Ledger, Client Account Collum
Both entries must state in the details collum the lenders name and that it is a mortgage advancement
What are the accounting journal entries for billing the lender and borrwer if the method of using 1 borrower ledgers is used?
The firm should record both sets of charges on the same ledger, but as separate entries, clearly labelling the lenders charges in the details collum.
To Bill for the Borrower
Bill
Debit Entry - Borrowers Client Ledger, Business Collum
Credit Entry - Profit Costs
VAT Debit Entry, Borrower's Client Ledger, Business Collum Credit Entry - VAT Leder
To Bill for the Lender
Bill
Debit Entry - Borrowers Client Ledger, Business Collum (CLEARLY LABELLED AS LENDERS FEE)
Credit Entry - Profit Costs (CLEARLY LABELLED AS LENDERS FEE)
VAT
Debit Entry, Borrower's Client Ledger, Business Collum (CLEARLY LABELLED AS LENDERS FEE)
Credit Entry - VAT Leder (CLEARLY LABELLED AS LENDERS FEE)
When issuing a bill, what colum is always used?
Always the business collum on the client ledger until it has been paid.
Debit Client Ledger Business Collum
Credit Profit Costs
Debit Client Ledger Business Collum
Credit VAT ledger
On a mortgage redemption, who would the firm be working for?
A mortgage redemption is when a seller sells the property which he has mortgage left to pay, and so needs to pay the remaining amount of mortgage from the sale price to the lender.
Thus the clients is the seller/borrwer and the lender.
When there is a mortgage redemption, and the firm receives the sale proceeds after completion, what are the 2 ways to deal with the mortgage redemption?
- Record all money into sellers / lenders client ledger, then interclient transfer the mortgage redemption amount to the lenders client ledger
- Directly put the mortgage redemption amount into the lenders ledger, and directly put the remaining money into the sellers ledger
When would a firm be holding a deposit as a stakeholder or agent?
When acting for a seller of a property, it is usual for the firm to receive a deposit from the buyers solicitor on exchange of contracts. Such deposits can be held by the firm either as a stakeholder, or a agent.
What are the 2 methods to hold a deposit as a firm?
- As a stakeholder
- As an agent
When holding the deposit as a stakeholder, whos money is the deposit after exchange of contracts?
When held as a stakeholder, it is held jointly on behalf of both the buyer and the seller until completion, when it will belong to the seller.
When holding the deposit as an agent, whos money is the deposit after exchange of contracts?
When held as an agent, it as held on the behalf of the seller. So, the money belongs to the seller from the exchange of contracts.
When acting as a stakeholder to hold the deposit on exchange of contracts, what are the 2 methods a firm can use to record this?
- Operate a Separate Stakeholder Ledger in the name of both the buyer and the seller
On exchange of contracts, deposit is recorded in the joint stakeholder ledger
On completion, the deposit can be transferred from the stakeholder ledger into the sellers ledger - Record the Receipt of the stakeholders deposit in the sellers client ledger - AND CLEARLY LABELL AS STAKEHOLDR MONEY
When acting as a stakeholder to hold the deposit on exchange of contracts, using a separate ledger in the name of both the buyer and seller, what are the journal entries?
Receipt of Money on Exchange of Contracts
Credit Entry, Stakeholder Ledger for buyer and seller,
client collum
Debit Entry, Cash Sheet, Client Collum
Transfer of Money to Sellers on Completion
Debit Entry, Stakeholder Ledger for buyer and seller,
client collum
Credit Entry, Seller Ledger, Client Collum
When acting as a stakeholder to hold the deposit on exchange of contracts, using the method of the seller’s ledger only but labelling as stakeholder money , what are the journal entries?
When held as an agent, it as held on the behalf of the seller. So, the money belongs to the seller from the exchange of contracts. Simply, a journal entry of reciept of client money.
Entry of client money
Credit Entry, Sellers Client Ledger, Client Account
Debit Entry, Cash Sheet, Client Account
What is a bridging Loan?
A bridging loan is money a client will borrow, usually short a short time, to ‘bridge’ a gap while they are waiting for other sources of income.
In a conveyancing context, a client may use a bridging loan to buy a new property before selling their old property.
In a probate context, the personal representatives administrating the estate may use a bridging loan to pay inheritance tax on the estate while waiting for the deceased’s assets to be sold.
What are the Journal Entries for a bridging loan?
Journal Entries for receipt of bridging loan
Credit Entry, Client Ledger, client account Debit Entry, Cash Sheet, Client account
What is a joint account?
- This is where a firm or solicitor has to operate a joint account with a third party.
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A common example is if a client has named the firm or solicitor as an executor alongside another executor(s) who are not apart of the firm.
Following the clients death, the executors can operate a joint account, rather than the firms general account, into which money of the estate is paid.
What are the only 2 rules that apply to joint accounts?
Rule 9.1 provides only 2 requirments from part 2 of the Rules (Client money and client accounts) apply to such joint accounts:
1. Obtaining bank or building statements for the joint accounts at least every five weeks 2. Keeping a central record of all bills or written notification of costs associated with the joint account.
NB: Even though other rules in part 2 don’t apply, the firm must still act in the clients best interest and safeguard their money ensuring that any potential risks are minimised.
What is a client own account?
What are the 2 ways for a solicitor to manage a client own account?
This is where a solicitor operates a clients own bank account on the clients behalf, for example where the client is unable to operate the account themselves due to a lack of mental clarity.
Power of Attorney - Before losing mental clarity, the client can appoint the solicitor before
Court of Protection Deputy - Solicitor may be appointed after the client has lost mental clarity
What 3 rules apply when a solicitor is managing a clients own account?
Rule 10.1 provides 3 requirements from part 2 of the rules apply:
- Obtaining bank statements for the account at least every 5 weeks
- Reconciling the statements at least every 5 weeks
- Keeping a central record of all bills or written notifications of costs associated with the account.In addition to the solicitors overriding obligations to act in the clients best interest and safeguard their money.NB: if rule 1 is not possible to comply with, as long as the solicitor has taken reasonable steps to ensure their clients money is not at risk, and keeps records of this, they have not breached the rule.
What is a third party managed account?
Third Party managed Accounts is where the firm outsources their responsibility for looking after money belonging to clients and other third parties to a business which manages the money in third party accounts. This is permitted as long as the firm does not hold or recieve clients money themselves.
