Property 7

Question 1

What can a failure by the buyer’s solicitor to be clear on how the purchase is to be funded prior to exchange of contracts lead to?

Answer 1

A claim of negligence against them.

Question 2

What are the two funding options available to a buyer?

Answer 2

• Cash purchase* Mortgage

Question 3

What checks must a solicitor carry out on all transactions in relation to the buyer’s funding of the transaction?

Answer 3

Checks on any cash (including deposit if using a mortgage) that a buyer is contributing towards the purchase in accordance with money laundering requirements.* Source of funds: Money had been in a UK-based bank account in the client’s name for the last three to six months (no hard and fast rule)* Source of wealth: Best practice demands that a client proves via documentary evidence where they got the money e.g. an inheritance, a bonus, a sale of other assets.

Question 4

Which 3 types of transaction require consideration of the lender’s requirements in a mortgage situation?

Answer 4

• Acting for a client selling a property subject to an existing mortgage* Acting for a client buying a property and borrowing money from a lender to do so or * Acting for a client seeking to transfer a mortgaged property from their sole name into joint names with a spouse/partner, or vice versa (transferring a mort gaged property from joint names to one client’s sole name).

Question 5

Regarding buyer’s funding of the property, whilst a solicitor cannot offer a financial opinion on the mortgage offer, what can they do?

Answer 5

• Explain the general terms, e.g. length, interest rate, conditions, but not whether it is a good product or not i.e. they can’t make a value judgment* If the client requires more specific advice, they should be advised to see an Independant Financial Advisor

Question 6

What are the 5 types of mortgage?

Answer 6

• Repayment (capital and interest repaid monthly)* Interest only (repays interest during term and capital at the end - need some other investment plan to repay capital)* Endowment (mortgage combined with a life assurance policy hoping the policy will realise sufficient funds to pay mortgage at the end, quite risky) * Pension (similar to endowment but mortgage linked to personal pension policy instead)* Sharia compliant (specialist lenders offer alternative mortgages to address concerns for Muslin clients regarding payment of interest)

Question 7

What two things will a lender require before issuing a mortgage offer?

Answer 7

• A mortgage valuation report* Evidence from the buyer that they can afford the mortgage

Question 8

What is a mortgage valuation report?

Answer 8

A report obtained by the lender to confirm that the property represents good security for the loan and require the buyer to provide evidence that they can afford the mortgage.

Question 9

In a residential property transaction, who is the mortgage offer issued to?

Answer 9

Usually the buyer and the buyer’s solicitor (the lender will also usually give instructions to the solicitor at the same time)

Question 10

What is required for a buyer’s solicitor to be permitted to act for the lender?

Answer 10

• The lender is an institutional lender, providing loans in the ordinary course of its business* The standard certificate of title is provided and * There is no conflict of interest or risk of a conflict of interest (note that the risk is considered not to be high if standard terms are used). However, if a conflict of interest arises, the solicitor should cease acting for both the buyer and the buyer’s lender.

Question 11

On the exam, what types of situations suggest a possible conflict of interest between the buyer and the lender?

Answer 11

• The lender has agreed to lend the money only for the purchase of a house, and the client makes it clear that they intend to set up a business with the money. * The client does not want the solicitor to disclose a fact to the lender which might materially affect the decision to lend money, such as impending bankruptcy of the borrower or a planning breach. In such cases, the buyer’s solicitor would need to cease acting for both the buyer and the buyer’s lender.

Question 12

Why is the buyer’s solicitor usually permitted to act for the lender in a residential transaction?

Answer 12

They have the same common interests i.e. to acquire a good and marketable title

Question 13

Does the buyer’s solicitor usually represent the lender in a commercial situation?

Answer 13

No, the lender will often appoint their own solicitor

Question 14

What two documents govern the terms of a mortgage offer?

Answer 14

• The UK Finance Mortgage Lender’s Handbook prepared in conjunction with the Law Society (majority) or * The Building Societies Association Mortgage Instructions.

Question 15

What is the UK Finance Mortgage Lender’s Handbook?

Answer 15

The Handbook comprises a series of standardised instructions to conveyancing practitioners and variations on these instructions that are required by particular lenders. * It is a series of ‘best practice’ guidelines on issues that may arise during title investigation and the purchase transaction generally.* Solicitors must ensure they check the relevant lender’s requirements when acting for the borrower and lender on a mortgage to ensure they are complied with. It been adopted by most institutional lenders so most mortgages are handled under these terms and was prepared in conjunction with the Law Society.

Question 16

In respect of fraud prevention, what 6 things are required under the UK Finance Mortgage Lender’s Handbook?

Answer 16

Buyer’s solicitor should check: * That all security documentation is properly signed (note that it is a best practice for solicitors to witness borrowers’ signatures on documentation)* That the seller is legally represented, and that funds are to be sent to the seller’s solicitor’s account* The details of the property valuation* How long the seller has owned the property* Whether the price referred to in the mortgage offer is the same as in the contract and * How the buyer is funding the rest of the purchase e.g. if third parties are contributing towards the purchase price, those parties could have an interest in the property.

Question 17

In respect of title, what 5 things are required under the UK Finance Mortgage Lender’s Handbook?

Answer 17

The solicitor must: * Take reasonable steps to ensure there are no discrepancies between the description of the property as valued by the lender’s valuation, and the title description being examined * Ensure that all usual and necessary searches and enquiries have been carried out (and report anything adverse to the lender)* Ensure that the lender is named as applicant in the HMLR pre-completion searches* Ensure that all searches (e.g. pre-contract searches) are not more than six months old at completion, except HMLR priority searches* Not release the mortgage advance unless the solicitor has sufficient funds to pay all stamp duty land tax and HMLR fees and to perfect the registration of the mortgage. If the solicitor does not have these funds when releasing the mortgage advance, the solicitor accepts responsibility to pay them.

Question 18

If any registration-related sums or stamp duty land tax have not been paid by the buyer, who is responsible for paying them?

Answer 18

The buyer’s solicitor undertakes to register the buyer’s mortgage after completion.

Question 19

When is the mortgage deed usually executed?

Answer 19

Prior to completion. In practice, this is often done just before exchange of contracts or at the same time as the clients sign the contract.

Question 20

What are the two functions achieved by the buyer’s solicitor submitting a clear Certificate of Title to the lender?

Answer 20

1. Confirms to lender that title is good and marketable (this is a legal function i.e. not administrative as lender is entitled to assume there are no issues with title unless reported by the buyer’s solicitor prior to drawdown)2. Requests a release of the mortgage advance

Question 21

Within what timeframe does the Certificate of Title need to be submitted to the lender?

Answer 21

Notice period in offer (often five or seven working days). Many solicitors ask for the completion funds to be sent to them the day before the legal completion date in the contract to account for delays in release.

Question 22

If representing both the buyer and the lender, and the buyer is borrowing funds from a relative or friend in addition to an institutional lender, what must the buyer’s solicitor do?

Answer 22

Report this to the institutional lender if representing them. * If there is a suggestion that the private funds are to be repaid, an institutional lender will usually not be willing to lend on the property. * Note that the buyer’s solicitor should not act for the buyer and the provider of the private funds due to the risk of a conflict of interest arising.

Question 23

If representing both the buyer and the lender, and there will be adult occupiers (e.g. child of owners) living in the property on completion, what must the buyer’s solicitor do?

Answer 23

Advise the lender of this. * The lender will require the non-owning occupier to sign a waiver/consent form to ensure that the occupier does not acquire any rights in the property which could defeat the lender’s interest in the event of default. * The buyer’s solictor should not act for the non-owning occupier due to the possibility of a conflict of interest.

Question 24

At what point of the transaction does the mortgage complete?

Answer 24

Completion of the mortgage cannot take place until the purchase has been completed i.e. before completion, the mortgage cannot be secured against anything, as the buyer does not yet own the property. Once the mortgage completes, the buyer’s solicitor must register the mortgage at HMLR.

Question 25

What two steps does the process of perfecting the mortgage involve, and who does it?

Answer 25

Buyer’s solicitor will:1. Apply to register the title to the property after completion2. Ensure the lender’s legal charge is registered as a first legal charge on the Charges Register (include the mortgage deed in the application for registration)

Question 26

What should we look for on the exam which might not appear to trigger a registration requirement for unregistered property but actually does, and why?

Answer 26

A client mortgaging property they already own which has not previously been subject to a mortgage, because a first legal mortgage is a trigger for registration

Question 27

What is the effect of a ‘search with priority’?

Answer 27

• Determine whether there are any charges on the property being purchased and * Temporarily prevent any new charges to be registered that would impact the buyer’s rights

Question 28

Regarding registered land, what search begins the priority period to complete registration free from intervening interests, and how long does this period last?

Answer 28

The OS1 or OS2 search will give a 30 working day priority period

Question 29

Where there is a registration requirement triggered by mortgage completion concerning unregistered land, within what period must the buyer’s solicitor register the mortgage?

Answer 29

Two months

Question 30

If the buyer is a company, within what period must the mortgage be registered at Companies House?

Answer 30

21 days of completion* A court application is required if deadline is missed* The certificate of registration of the mortgage from Companies House must accompany the HMLR application.

Question 31

What does ‘perfecting the mortgage’ mean?

Answer 31

The process of making the application to register the title to the property after completion and ensuring that the lender’s charge is registered as a first legal charge in the Charges Register is known as ‘perfecting’ the mortgage.