Lenders’ panels lie behind one of the many challenges conveyancers will have to tackle in a year that looks like it will be the most demanding in a long time. And technology is another issue that could make or break solicitor firms
It is difficult to believe there has ever been a more challenging time for property lawyers engaged in conveyancing. The market is operating at volumes that are less than half the accepted norm, the provision of the Legal Services Act – the so-called Tesco’s Law – is now a reality and mortgage lenders are adopting various ways of more closely managing the panels of conveyancers that they will allow to act for them.
Add to this the need to keep up with technology, the ceaseless flow of legal cases relating to property law and the growing prominence of estate agents as a source of conveyancing business, and you start to appreciate the scale of the challenge.
High street lawyers are nervous about the progress of centralised conveyancers and professional indemnity cover premiums have increased yet again for solicitors. Some conveyancing solicitors cannot get PI cover and April 2012 sees the end of the assigned risk pool – the system under which solicitors unable to obtain cover on the open market are given temporary cover to enable them to stay in practice.
Is it any wonder that there has been an angry backlash from conveyancers to the announcement that HSBC has implemented a panel of just 42 firms to act for it?
Perhaps lender panels are a good place to start as we look to the future. Mortgage fraud has become an unwelcome and steadfast feature of the conveyancing landscape in recent years.
Annual losses of over £1bn are widely quoted, although many believe it is significantly higher as some lenders do not disclose their losses.
The thematic review by the Financial Services Authority has resulted in pressure on lenders to address the issue and a number of approaches are emerging – HSBC’s being just one. It is unfortunate that an industry-wide solution could not be found as that would at least have let conveyancers know where they stand.
The Law Society has put in place the Conveyancing Quality Scheme for solicitors, which goes some way to reassuring lenders about the standing of a firm. But it does not provide day-to-day monitoring of firms and lenders have not embraced it as the solution. However, it may be an important element of the solutions that lenders adopt – all the solicitors on the HSBC panel have CQS accreditation.
But what has become clear to solicitors is that CQS is not a passport to lenders’ panels – as HSBC has vividly demonstrated. Also, there are four licensed conveyancing firms on HSBC’s panel that do not have CQS, which is available only to solicitors.
The Law Society’s CQS initiative does not provide day-to-day monitoring of firms and lenders have not embraced it as the solution
Between 10% and 15% of conveyancing is undertaken by licensed conveyancers and the two largest firms in England and Wales are regulated by the Council for Licensed Conveyancers.
The CLC is viewed as a fit for purpose regulator and enjoys a good reputation with lenders. The incidence of mortgage fraud involving licensed conveyancers is considerably lower than that involving solicitors with only one major incident in recent years.
The Society of Licensed Conveyancers, a professional body for licensed conveyancers, has been working in collaboration with the CLC to deliver a lender panel solution – SLC Quality Assured – which will be launched in the spring. This system provides proactive monitoring of conveyancing transactions to identify risks of potential fraud until the time of completion. Initial conversations with lenders indicate the system has been well received, but only time will tell if it gains widespread adoption.
Of course questions arise from the approach lenders are adopting – at least if HSBC is used as an example. A panel of firms acting on the purchase side of the transaction is only part of the solution. Much fraud these days takes place on the vendor side of the transaction, which suggests lenders need to look at panels that control and mitigate risk from vendors’ conveyancers. Only proactive monitoring of transactions will help this.
The next issue that arises is in respect of separate representation for buyers in the purchase of their property. This is where one conveyancer acts for the purchaser and another for the lender. This not only adds complexity and cost to the conveyancing process but begs a more fundamental question. Purchase conveyancing appears unique in that property lawyers routinely act for two different parties with regards to a transaction. Some have long held the view that not only is this unhealthy but that it can leave the lawyer conflicted.
In today’s litigious times this must be a cause for concern. If lenders were to adopt the HSBC approach on a wide scale, it is likely that a debate on this fundamental issue would ensue.
So what does this mean for conveyancers? First, extended uncertainty as lenders put their preferred approach in place. As the landscape gets clearer, solicitors will look to the Law Society for a way forward that substantially enhances or goes beyond the CQS. Licensed conveyancers will watch to see if SLC Quality Assured gains traction with lenders.
The introduction of Alternative Business Structures, whereby law firm ownership is open to people and companies outside the legal profession, is unlikely to create an overnight revolution.
But it is probable that major players will enter the market over time – Co-operative Legal Services, part of the Co-operative Group, has already made the first move. Using the ABS model, a number of solicitors may hive off their conveyancing arms and move to the status of licensed conveyancers regulated by the CLC, particularly if SLC Quality Assured is successful.
Conveyancers that do not embrace technology to run their businesses will gradually go into decline. At some point it is inevitable that a central information property cloud will be developed that will allow conveyancers to act in real time. This would also enable third parties such as lenders and estate agents to have a transparent view of blockages in the system, putting further pressure on conveyancers.
Fingers crossed, the market will at some point in the coming years start to recover to the benefit of all those businesses that rely on home buying and selling transactions for a living.