Prop12.7: Finance and acting for a lender

Question 1

Why does a lender take the first legal charge over the property?

Answer 1

As security for the loan

Question 2

If the property is unregistered, when should the solicitor register the property to the HMLR and what else will they need to do if the property is in a mortgage

Answer 2

carry out an application for first registration within 2 months of completion and ensure that a lender’s mortgage is registered on the newly created charges register.

Question 3

If a buyer puts some of their own money towards the purchase, their solicitor must comply with

Answer 3

Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer)
Regulations 2017 - must check all sources of funds and the source of wealth

Question 4

If the buyer is not taking out a mortgage they are called

Answer 4

a cash buyer

Question 5

Who is under a duty to check the source of funds and the source of wealth used for deposits?

Answer 5

The buyer’s solicitor is under a duty to ensure that any cash
contributed towards the purchase is checked in accordance with the Money Laundering,
Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

Question 6

A buyer’s solicitor must check the source of funds as a first step - what are these?

Answer 6

establishing where the cash is
being held. Usually should be a UK based bank account or building society account

Question 7

What is the second stage?

Answer 7

Establish where the cash is being held ie. the source of the wealth as the second part of money laundering compliance

Question 8

If the buyer cannot show the source of the funds, what should the buyer’s solicitor do

Answer 8

The solicitor should consider
reporting the matter to the firm’s Money Laundering Reporting Officer

Question 9

Gifted deposits - what steps are required?

Answer 9

the buyer’s solicitor should carry out the same source of funds and
source of wealth checks.

Question 10

Taking a legal charge over the
property as security for the loan apply equally to

Answer 10

residential and commercial properties

Question 11

What does the lender require the buyer to complete?

Answer 11

mortgage valuation report - survey of the property to establish the physical structure etc and that it represents a good security for the loan

Question 12

Can the buyer rely on the mortgage valuation report if they notice a defect?

Answer 12

No. carried out for the lender by the buyer on behalf of the lender. The buyer should have commissioned their own survey to rely on

Question 13

Separate representation means

Answer 13

In a commercial property transaction, it is more likely that the mortgage lender will appoint their
own solicitor from the buyer.

Question 14

There are different types of

Answer 14

Mortgages

Question 15

Repayment mortgage

Answer 15

the borrower repays an element of capital and interest every
month and the loan is paid off at the end of the term.

Question 16

Interest-only mortgage

Answer 16

the borrower repays only interest during the term of the loan. The
capital remains outstanding for the term of the loan and the borrower must have an
investment plan in place to pay off the capital at the end of the term.

Question 17

Endowment mortgage

Answer 17

A mortgage product combined with a life insurance policy. Each
month the borrower pays insurance premiums with the aim of the life insurance maturing at
the end of the term to pay off the mortgage. These investments have not proved successful
over time, and this is now a rare mortgage product.

Question 18

Pension mortgage

Answer 18

A type of mortgage linked to the borrower’s pension and is typically
used by borrowers who are self-employed

Question 19

Sharia-compliant mortgage

Answer 19

a type of mortgage product offered by specialist lenders that
is compliant with Islamic law

Question 20

Why can’t a solicitor give advice on mortgage product or lender?

Answer 20

This is to
ensure compliance with regulatory requirements in the Financial Services and Markets Act
2000.

Question 21

Standard instructions and lender requirements are found in (in a residential context)

Answer 21

• UK Finance Mortgage Lenders’ Handbook for Conveyancers (known as “the Handbook”),
  or
• Building Societies Association, Mortgage Instructions.

Question 22

Most lenders follow the

Answer 22

Handbook - UK Finance Mortgage Lenders’ Handbook for Conveyancers

Question 23

Is there a conflict of interest when a lawyer acts for the buyer/borrower and lender?

Answer 23

No - both parties are the same, that is, both buyer/borrower
and lender want a property with a good and marketable title. But in a commercial transation they often do instruct different teams

Question 24

Should a lawyer act for a person gifting a deposit and the buyer?

Answer 24

No because the interests of anyone gifting a deposit to a buyer or of a prospective non-owning occupier on
completion are different to that of the buyer

Question 25

What is the function of the certificate of title?

Answer 25

• it acts as a request to the lender for drawdown of the loan (this means between the exchange of contracts they receive the mortgage advance from the lender), and
• it confirms to the lender that the title to the property being purchased is good and
  marketable.

Question 26

What is a Company Charge and when must it be registered?

Answer 26

When the buyer is a limited company or company, the buyer’s solicitor must
register the mortgage at Companies House within 21 days of completion.

21 days is key here
Look out for the phrase limited company or company

Question 27

When must a registered property be registered at HMLR following completion?

Answer 27

30 working days - application will include the lender’s legal charge against the property

Question 28

If the property is unregistered, when must registration be completed at HMLR?

Answer 28

2 months of completion and the registration will include the lender’s charge

Question 29

What is another key final step?

Answer 29

Sending the deeds of the property to the lender

Question 30

What is a type of mortgage referred to?

Answer 30

Mortgage product

Question 31

Name two of the requirements set out in the Handbook that the solicitor must carry out:

Answer 31

1. the solicitor must carry out appropriate identification and due diligence procedures relating to the borrower.
2. the solicitor must raise appropriate searches and enquires on the property being purchased

Question 32

What is the document called which creates the legal obligation between the couple and the bank regarding the loan?

Answer 32

Mortgage deed