Property Transactions

Question 1

What are the solicitor’s main responsibilities when handling client money in property transactions?

Answer 1

1. Recording: All receipts and payments of client money must be accurately recorded in client-specific ledgers.
2. Identification: Clearly identify for whom the money is held at every stage of the transaction.
3. Transfers: Properly manage inter-client transfers when money changes ownership between parties.
4. Compliance: Follow SRA Rules to protect client money and maintain a clear audit trail of all transactions.
5. Stakeholder Consideration: Special care is required when holding stakeholder money to ensure joint interests are represented.

Question 2

What is stakeholder money, and how is it managed by a solicitor?

Answer 2

Money (e.g., a deposit) held jointly for the buyer and seller, typically received by a solicitor acting for the seller.

• Rules:
  1. It must be deposited into the client bank account.

2. Cannot be treated as the seller’s property until completion.
3. Must be recorded appropriately:

• Option 1: Label on the seller’s ledger account as “Stakeholder Money Held Jointly for Buyer and Seller.”
• DR Cash (Client section)
• CR Seller’s ledger (noting stakeholder money). client section
• Option 2: Create a separate joint stakeholder ledger account:
• DR Cash (Client section)
• CR Joint stakeholder ledger account (Client section).

Question 3

How is stakeholder money recorded after completion?

Answer 3

1. Transfer funds from the joint stakeholder ledger account to the seller’s ledger account:

• DR Joint stakeholder ledger account (Client section)
• CR Seller’s ledger account (Client section).

2. This transfer ensures the funds are available for the seller alone and prevents misuse of joint funds.

Question 4

What is bridging finance, and how should it be recorded by a solicitor?

Answer 4

A temporary loan taken by a seller who lacks sufficient funds to pay a deposit on a replacement property.

Recording Bridging Loan Receipt:
* CR Borrower’s ledger account client section
* DR Cash account (Client section).

Repayment Upon Sale Completion:
* The loan and accrued interest are repaid to the bank.

Question 5

How are mortgage advances managed by solicitors acting for both buyer and lender?

Answer 5

Option 1: Mortgage funds are credited to the borrower’s ledger account, labeled with lender details:

• CR Borrower’s ledger account (noting lender and mortgage advance).

Option 2: Funds are credited to a separate ledger in the lender’s name:

• CR Lender’s ledger account.

On completion, transfer the funds to the borrower’s ledger:
- DR Lender’s ledger account
- CR Borrower’s ledger account.

Question 6

How are professional charges for a mortgage advance recorded?

Answer 6

1. Buyer’s Fees and VAT:

• DR Buyer’s ledger account (Business section) fees and vat separate
• CR Profit costs account and HMRC account with Vat

2. Lender’s Fees and VAT:
   * DR Lender’s ledger account (Business section) with fees charged on the mortgage and vat

• CR Profit costs account and HMRC account with VAT .

3. Transferring Fees: If the buyer agrees to pay lender’s fees:

• CR Lender’s ledger account business section with fees charged on the purchase and VAT as one figure.
• DR Buyer’s ledger account, business section with fees charged on the purchase and vat as one figure

Question 7

How is mortgage redemption managed when acting for both lender and seller?

Answer 7

1. Initial Recording of Sale Proceeds: Credit full proceeds to the seller’s ledger:

• CR Seller’s ledger account (Client section)
• DR Cash account (Client section).

2. Transfer Redemption Amount:
   * DR Seller’s ledger account ( Client Section
   * CR Lender’s ledger account.( Client Section)
3. Alternative Approach: Split credit entries upon receipt:
   * Part to the seller’s ledger.
   * Part to the lender’s ledger.
4. Paying Off the Mortgage:
   * DR Lender’s ledger account (Client section)

• CR Cash account (Client section).

Question 8

How are professional charges for mortgage redemption recorded?

Answer 8

1. Legal Fees and VAT:

• For seller’s fees:
• DR Seller’s ledger account (Business section) with fees charged on the sale and VAT.
• CR Profit costs account . with fees charged on the sale and and HMRC account VAT.For lender’s fees:
• DR Lender’s ledger account (Business section) with fees charged on the sale and VAT.
• CR Profit costs account with fees charged on the sale and and HMRC account VAT.

2. Transferring Fees to Seller: If the seller agrees to pay the lender’s fees:
   * CR Lender’s ledger account with the fees charged on the mortgage and VAT as one amount.

• DR Seller’s ledger account with the fees charged on the mortgage and VAT as one amount.

Question 9

What are the key compliance principles when managing client money in property transactions?

Answer 9

1. Client Money Protection: Always ensure funds are safeguarded in the client bank account.
2. Audit Trail: Maintain a clear record of all movements of money, including receipts, transfers, and payments.
3. Rule 8.1: Requires all receipts and payments of client money to be recorded in ledgers identified by the client’s name and transaction details.
4. Transparency: Clearly label all funds (e.g., stakeholder money, mortgage advance) to prevent confusion.