Broker Guide: Dual Representation

Broker Guide: Dual Representation



For many decades, dual legal representation has been the norm across the mainstream mortgage market. In such standard transactions, it is common for the borrower and lender to receive joint legal advice from one law firm where the interests of these parties are largely aligned. Often mortgage lenders will offer this type of funding on the basis of ‘tick box’ requirements, and when doing so, the legal work involved is straightforward.



Using the same legal team for mortgage purposes is considered beneficial for both the lender and borrower primarily because the deal is not slowed through ongoing communication with different firms and costs are saved by having all the paperwork in one place, essentially streamlining the legal and conveyancing process.



The benefits of this have been recognised by the bridging indulegal

stry and a number of lenders are now beginning to offer dual legal representation to borrowers. However, there appear to be concerns about whether this kind of legal process is appropriate for such a niche area of finance. Bridging loans differ substantially from straightforward mortgages, where each case is underwritten on its individual merits and each deal often displays a new quirk. In addition, many in the industry have reservations about a legal team’s ability to remain impartial if employed to represent the lender in all their deals.



And so, it is important that your client is aware of some of both the potential drawbacks and anticipated benefits surrounding this kind of legal advice.



Recently announcing their offering of joint legal representation for bridging applicants with Goldsmith Williams Solicitors, Precise Mortgages have drawn our attention to this growing trend.



We spoke to Alan Cleary, Managing Director at Precise, who talked us through the reasons why he believes this is the best option: “With single legal representation, our solicitors will have to supervise the work of the borrower’s solicitors and perform due diligence on the firm to ensure they match our high standards. The client will incur two sets of costs when the solicitors are working through the same case, but with dual representation this can be avoided.”





He continued: “Law firms often do not take kindly to instruction from other solicitors and some are overly sensitive in taking guidance as they all operate in different ways, providing a significant stumbling block.” 

Alan also emphasised that their preferred solicitors are not working in house, even though they are employed to work on their behalf. He said: “Goldsmith Williams are an outsourced law firm who do not work only for us. Their independence can reassure the client that they are just as representative of their interests, with P.I cover equally protecting us and the client.”



However, he did stress that a borrower can opt to use their own solicitor if they wish, but they often agree that this doesn’t make sense, given the time and monetary savings that can be made.



Alan added: “Looking at the bigger picture, there is a statutory requirement for lenders to address, and even restrict, their legal panels in order to reduce the risk of financial crime as lawyers represent some of the biggest exposure to fraud for a lender.”



With this in mind, we also spoke to Eddie Goldsmith, senior partner at Goldsmith Williams Solicitors, who echoed Alan’s sentiments: “Precise are looking to streamline the legal process which is often the part of a deal which is the most daunting to a client. Things can get heated between lawyers who don’t take kindly to receiving advice from another firm, so joint representation suggests an easier route for the client.”



Eddie also highlighted another benefit, explaining, “There is less exposure to fraud or identity theft as the lender’s solicitor does not have to communicate three-fold – instead of going through the borrower’s solicitor then to the vendor’s legal team, dual representation means one set of lawyers are removed.”



We also asked him about some of the concerns that have been raised, to which he responded: “If we do come across a potential conflict of interest, for example, if a client discloses some information to us that they ask us to keep from the lender, we are bound to withdraw from the transaction.”



He continued: “We have to ensure that the client receives the very best in independent legal advice. This means, the client must be 100 per cent aware of the terms of the deal and understand the repercussions of defaulting on the loan. We have just as much duty of care to the borrower as the lender.



“Naturally, there is a lot of resistance in the market to significant changes; however, I believe that if the level of service is right for the customer, their journey is hugely improved by choosing dual representation in a bridging transaction.”



Whilst appreciating that the lender’s thinking in these transactions is likely to be in terms of saving time and expense on the borrower’s behalf, Jonathan Newman, Senior Partner at Brightstone Law LLP offered a different perspective: “In reality, I’m not convinced that there will be a significant saving in time and thus expense, because the lender’s solicitor is often familiar with bridging processes so tends to push the deal through anyway.”



Expressing another concern, he said: “A lender’s preferred solicitor may not be familiar with the borrower or the specific location and in such circumstances the client will lack direct contact with the solicitor, so it is questionable whether time or money will be saved. This lack of relationship means that communication can be even slower.”



However, Jonathan told us that dual representation can pose a much more significant issue for lenders if the customer claims that they did not receive independent legal advice, should they fail to repay the loan.



He said: “The number one swaying factor in court protecting the lender from a loss will be if the client was deemed to have received independent advice and was believed to have properly understood the terms of the deal. This is a very real issue where claims management companies are actively seeking out claims against lenders.”



And so,  whilst using separate law firms may be slightly more expensive or time consuming in some circumstances, they may save a lender a great deal of difficulty if the client does not comply with the terms of the deal.



What is clear is that customers’ experience of bridging finance is vital to the deal and the level of independent advice required is an important consideration when deciding whether this legal process is the right choice for them.


By Alexandra Jones


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