Feature title
The Legal Problem
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“Most clients arrive at the table with a long standing family or corporate solicitor and nine out of 10 times these solicitors will have zero experience of dealing with bridging,” says McColl. “It’s my opinion that brokers and lenders should be steering clients away from the ‘mum and dad’ legal firms to those that specialise in our sector’s requirements... with the net result being to get the deal done.” Christian Faes, director at lender Montello and himself a lawyer by training, says the law plays a very large role in bridging finance. “We
OPINION: A DISTRIBUTOR’S VIEW
by Mel Fordham, chief executive, Centrado
receive a lot of our deal-flow from solicitors that have referred their client to us to see if bridging finance is a viable option for them,” he says. “In terms of solicitors providing opinions on whether they should take a bridging loan this is not really within the professional mandate of the solicitor. At the end of the day they should be advising on the legal terms but it is a commercial decision for the borrower as to whether to take the finance or not.” Goldsmith agrees. “Legal and financial advice are two different things,” he says. “ The broker’s job is to identify the most appropriate
Most recently we have experienced difficulties completing a case because the solicitors acting for the lender were raising enquiries which had already been addressed by the lender during their underwriting. This leads me to believe there is an overlap on underwriting between the lender and their legal representatives. Whilst I am a staunch advocate for protection of the security, which affords the borrower and lender joint benefits and protects the integrity of our industry, it can result in very frustrated clients, who generally assume it’s the lender’s lack of appetite to lend. Bearing the above in mind, my perception is that the lawyers represent the lender in many different ways, some distinctly defined, some in much more subtle ways. Generally, my experience is that solicitors rarely recognise or involve the broker unless there are issues
10 BRIDGING INTRODUCER MARCH 2012
which jaundice the completion, at which time it is normally the client that invokes the assistance of the broker and requests intervention / clarification from the lender. However, there are exceptions and I have found, especially recently, there are legal firms that recognise that although autonomous, we are all part of one big team at the end of the day. Unless we work together simple cases become very protracted. Joint representation can result complications post completion which may have serious implications on security and may ultimately jaundice the lenders position completely. As I’m sure anyone who truly understands and sympathises with the lender’s position will agree, borrowers in a distressed position are prone to use any argument to get a credit agreement nullified and I’m sure it’s the argument that the client was not adequately represented or where conflict of interest on behalf of the solicitor can be proved is the core problem. However, in the event of re-financing, I think the risk is significant less as in most instances the client is already committed. I think if the solicitors can provide suitable assurances and indemnities that satisfy counter arguments, joint representation will be more readily accepted as it certainly reduces
product for the client’s situation and the solicitor, who is not authorised to give advice, should simply ensure that the client understands certain basic terms in the contract – for example the initial redemption rate. Good brokers will of course alert their clients to this but it’s the lawyer’s duty to make sure clients understand what they’re getting themselves into.”
LEGAL WRANGLING New kid on the block Precise Mortgages has come up with one potential solution – joint representation. Its reasoning is
costs for both parties and expedites completion. However, I’m not 100% sure the legal profession will endorse it wholeheartedly as it will obviously reduce instructions in what is already a sluggish market. Sometimes I think the phrase
don’t fix it if it’s not broken is very apt. I’m sure if you asked the broker for his suggestions for an improvement it would be an early instruction of streamlined, slimmed down requirements list and instruction of solicitors by the lender. Ask the lender for the same question and it would result in a greater degree of protection and higher indemnities from the solicitor and their professional indemnity providers. Pose the same question to the solicitor and I’m sure they would advice they are not adequately rewarded for the work they undertake and the continued exposure to claim post completion. Asked the same question, the clients would, I’m sure, complain: “Legal charges are too high, do not reflect value for money and are far too complicated and drawn out”. In conclusion, any changes have implications, which invariable involve greater costs or a compromise of some sort, in the current fragile economic climate I feel that we might just about have the balance right.
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