A High Court judgment released last week has ruled in favour of lenders after lawyers failed to obtain a first legal charge against a property when releasing funds to the vendor’s solicitors, according to a publication by Eversheds LLP. 

High street mortgage lender Nationwide Building Society took action against its own legal representatives, Davisons Solicitors, after the firm released mortgage funds to a fraudulent firm of solicitors who claimed to act on behalf of a vendor.

Nationwide Building Society was approached by a fraudulent legal firm wanting to obtain a mortgage on a property, despite the true owner of the property being unaware of the sale. The firm convinced the Solicitors Regulation Authority (SRA) that it was a branch of a legitimate legal practice, and subsequently was able to obtain a mortgage from the lender.

The ruling by the High Court on April 24 2012 decreed that Nationwide’s solicitors, Davsions, were ultimately in breach of contract and in breach of trust after the fraudulent law firm came into possession of the advance. 

The ruling was upheld because, according to the CML handbook, the lender’s solicitor has a mandatory responsibility to obtain a legal charge upon completion. In addition, in this case, even though the fraud was complex, the firm was in breach of trust the lender had instilled in them – emphasising the importance of lawyers’ diligence checks. 

However, according to the recount of the case by Eversheds LLP, Davisons maintained that it should not have been held responsible for registering Nationwide’s charge on neither the property nor the successful completion.

This case highlights that fraud continues to be a significant issue where large sums of money are being exchanged, and, even if one is not the fraudulent party one may become accountable for such bogus interventions if one fails to exercise an adequate duty of care.