Broker Guide: Applications - The do's and don'ts - Part 2

Broker Guide: Applications - The do's and don'ts - Part 2


Whether it’s a breakdown in communication, a lack of due diligence or a failure to recognise fraudulent applications, there are numerous reasons why bridging cases can experience difficulties. Following on from last week’s

Broker Guide

, which focused more on the underwriting problems lenders have faced recently, Bridging & Commercial spoke to a couple of industry figures who gave us some legal examples about typical problematic cases...

Bob Sturges, Head of Communications at Omni Capital, commented: “The legal aspects of pulling together a successful bridging deal can be complex, frustrating and extremely time-consuming. The key is to have as much information and data available at the earliest stage of the process. This gives your lender valuable time to investigate and, hopefully, overcome any difficulties presenting themselves.

“Legal problems come in different shapes and sizes and cannot easily be categorised in a simple definitive list. But two recent examples spring to mind that share the characteristic of having seriously delayed early completion of otherwise very attractive bridging deals.”

Speaking on such legal problems, Bob outlined the first example to us. “The first involved a problem with the legal adviser retained by the client. At Omni Capital, we make it abundantly clear through the Indicative Terms document issued on every case that while the client has a perfect right to choose their own lawyer, that person must be a fully-qualified and practising solicitor, and a member of a firm comprising a minimum of two partners. This is a simple and recognised industry standard to mitigate legal problems and fraud.”

Describing the case in more detail, Bob said that, “In this particular instance, the application was close to completion when it became apparent that the client’s representative was a licensed conveyancer. This failed to meet our clear requirements, and a replacement lawyer had to be sourced at a cost in time and money. The delay was easily avoidable.

“Should we, the lender, have taken steps to verify the professional status of the client’s representative earlier? Perhaps, but I would argue strongly that our criterion was clear and unambiguous. Nevertheless, upon receipt of a completed application form we now check the client’s nominated legal representative against the Law Society website and the Solicitors’ Regulation Authority.”

However, the second example outlined by Bob was much more complicated. “The second case concerns a fairly complex technical issue regarding stamp duty and the use of legal vehicles known as Stamp Duty Land Tax saver schemes, or SDLTs for short.

“Many cases involving high-net worth individuals feature the use of such vehicles in order to minimise the amount of stamp duty paid by the client. Often controversial, these vehicles are nonetheless perfectly legal and legitimate and recognised by the tax authorities…for the time being, at least. Where employed by the client, however, they add a level of complexity to a deal that requires close attention.

“In a recent case processed by Omni Capital, the use of an SDLT only came to light very late on. Not only did this require us, and our lawyers, to satisfy ourselves as to the specific structure of the vehicle, but other complications became apparent regarding liability for the full gross value of the stamp duty in the event Omni Capital became obliged at some future time to seek repossession of the security property. While considered a very low risk, we nevertheless had to take a prudent approach to protect our own position – but again, at a cost in time and money.”

Stephen Wasserman, Director at West One Loans, told us that in terms of legal hurdles in bridging applications there are two main common problems.

“The first problem is in relation to a borrower’s solicitor not being able to or indeed quick enough to pass on the necessary information onto a lender in the designated timeframe.”

Speaking about West One Loans’ legal team, Stephen said, “We’re able to provide a turnaround in three hours max and have a specially trained solicitor team in bridging finance.

“A borrower’s solicitor is not usually used to the speed in which WOL can turnaround a contract.”

The second problem Stephen emphasised was that “a borrower has to sign their documents in person and in front of their solicitor, which delays the timeframe also. When dealing with these issues there has to be independent legal advice and signing these documents cannot be done over the phone.”

Stephen concluded that the root and nature of these legal common problems, “is that a borrower’s solicitor is just not used to dealing with bridging loans and the short timeframes.”

In summary, Bob told us “We [Omni] do not expect our brokers or distributors to be legal experts.” He added, “We do, however, ask them to explore fully, and as early as possible, all pertinent aspects of an application. We have immediate access to some smart legal brains, and so long as we know what the potential problem or complication may be, we can usually find a speedy solution.”

By Jason McGee-Abe

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