Acting for Lender and Certificates of Title Flashcards
What is a lender’s primary concern when granting a mortgage?
A. That the borrower has a good credit rating
B. That the borrower is emotionally invested in the property
C. That the borrower will not default on monthly payments
D. That the property has sufficient value and marketability to secure the loan
D. That the property has sufficient value and marketability to secure the loan
Explanation: A lender’s primary concern is whether the property itself serves as adequate security for the loan. If the borrower defaults, the lender must be able to sell the property to recover the loan amount. While creditworthiness is relevant, the property’s marketability and value are the key factors in securing the loan.
Under the SRA Code of Conduct, when can a solicitor act for both the buyer and the lender?
A. Always, as it saves costs and time
B. Only if the lender gives written consent
C. If there is a substantially common interest and no significant conflict risk
D. Never, as it is always a conflict of interest
C. If there is a substantially common interest and no significant conflict risk
Explanation: Under paragraph 6 of the SRA Code of Conduct, a solicitor cannot act for two parties in a transaction where there is a client conflict or significant risk of one, unless the parties have a substantially common interest. In residential transactions, this is usually met because both the lender and the buyer want a property that is properly valued, marketable, and legally sound.
Why do high street lenders typically allow the buyer’s solicitor to act for them as well?
A. Because lenders trust all solicitors to act impartially
B. Because the lender’s mortgage terms are standard and non-negotiable
C. Because it reduces the lender’s legal costs significantly
D. Because the lender and borrower are legally the same entity
B. Because the lender’s mortgage terms are standard and non-negotiable
Explanation: High street lenders usually have preset, non-negotiable mortgage terms and require the solicitor to follow the Council of Mortgage Lenders (CML) Handbook. Since the lender’s instructions are standardized, there is typically low risk of a conflict of interest when the same solicitor acts for both the buyer and lender.
A buyer is purchasing a large commercial property for redevelopment. The lender has the right to step in and develop the site if the buyer defaults. Who should act for the lender?
A. The buyer’s solicitor, as in residential transactions
B. The lender’s in-house team, as lenders never use external solicitors
C. The lender’s own solicitor, as commercial transactions create a higher risk of conflict
D. The buyer’s solicitor, but only if the lender provides written consent
C. The lender’s own solicitor, as commercial transactions create a higher risk of conflict
Explanation: In commercial transactions, conflicts of interest are more likely because terms are negotiable, and lenders often require additional rights (such as step-in rights for development). As a result, lenders typically instruct their own solicitors to handle security, title checks, and loan documentation.
A buyer is obtaining a mortgage from a high street bank to purchase a house. The lender requires a certificate of title before releasing funds. What does this certificate confirm?
A. That the borrower is financially stable and has no outstanding debts
B. That the property’s title is satisfactory for lending purposes
C. That the lender is legally protected from all risks
D. That the solicitor has personally inspected the property and guarantees its value
B. That the property’s title is satisfactory for lending purposes
Explanation: A certificate of title is a document provided by the solicitor confirming that the property’s title is good and acceptable for lending. This allows the lender to release funds with confidence that the property is a valid and marketable security.
A solicitor acting for a lender in a commercial transaction is asked to provide a certificate of title. What industry-standard format is typically used?
A. A freehand report drafted in any format the solicitor chooses
B. The Council of Mortgage Lenders (CML) Standard Certificate
C. The City of London Law Society (CLLS) Certificate of Title
D. A signed statement from the borrower confirming that they own the property
C. The City of London Law Society (CLLS) Certificate of Title
Explanation: In commercial transactions, the industry-standard certificate of title is the City of London Law Society (CLLS) Certificate of Title. It follows a strict format, with statements that must be disclosed if incorrect. Lenders rely on this heavily, and solicitors can face liability for errors.
A lender provides a commercial loan to a buyer. The solicitor acting for the lender must draft security documents. What key document establishes the lender’s right to repossess if the borrower defaults?
A. The facility letter
B. The mortgage offer
C. The legal charge (mortgage deed)
D. The certificate of title
C. The legal charge (mortgage deed)
Explanation: The legal charge (or mortgage deed) is the document that creates the lender’s security interest over the property. If the borrower defaults, this charge allows the lender to repossess and sell the property to recover the debt. It is registered at the Land Registry to secure the lender’s rights.
A solicitor acting for a lender in a commercial transaction is completing the CLLS Certificate of Title. The certificate states that the property abuts a public highway, but in reality, access is over private land. What must the solicitor do?
A. Amend the statement to match the actual situation and provide a disclosure
B. Ignore the discrepancy since it is minor and unlikely to cause issues
C. Omit the statement about highway access from the certificate entirely
D. Sign the certificate without changes, as the lender is responsible for verifying access
A. Amend the statement to match the actual situation and provide a disclosure
Explanation: The CLLS Certificate of Title contains standard statements, but if any are incorrect, the solicitor must disclose this in the certificate. In this case, the solicitor must clarify that access is over private land so the lender can assess the risk.
