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Property claims are still a concern for insurers, and the recent upturn in residential conveyancing brings with it a concern that some firms may be building up to another spate of lender claims in the future.  The recent case of Goldsmith & Williams v E.Surv [2015] EWCA Civ 1147 is very relevant to this, as it revived a discussion of the scope of a solicitor's duty to the lender.

The Mortgage Express case revisited

In Mortgage Express v Bowerman (1995) it was held that a solicitor's duty to a lender extends beyond simply investigating title.  You must report any non-confidential information which might have a bearing on the lender's potential security or their decision to lend.

This latest case has confirmed that the solicitor's duty as determined in Bowerman, is not limited to the CML Handbook requirements – you must still report any other information which might have a bearing on the decision to lend. 

Goldsmith & Williams v E.Surv:  the facts

In December 2005 Mr Gayler, a property developer, applied to The Mortgage Business (TMB) to remortgage a property that he already owned. He advised TMB that he had bought the property in October that year for £450,000.  The property had already been valued for a previous lender by E.Surv at £720,000.  TMB agreed to lend the borrower £580,000 and in February 2006 instructed Goldsmith Williams (GW) to act for both themselves and the borrower.

GW accepted the instructions and obtained office copy entries, which showed that the property had in fact been purchased in September 2005 for just £390,000.  They had a copy of the mortgage offer and the valuation.  There was no evidence that they appreciated the significance of this information but in any event they did not pass it on to TMB.

Perhaps inevitably, the borrower failed to make repayments and TMB repossessed the property and sold it at a loss.  They brought a claim against E.Surv, the surveyors – not surprisingly, they also intimated a claim against GW.  They did not pursue this after GW drew their attention to the incorrect statement made by the borrower about the purchase price in his mortgage application.  The claim against E.Surv was settled for £200,000 and E.Surv then brought a claim for contribution against GW.

Goldsmith & Williams v E.Surv:  decision and appeal

At first instance, it was held that GW had been in breach of duty.  If they had informed TMB of all the circumstances, no loan would have been made and so the loss would not have been incurred.  The CML Handbook was not a restrictive statement of their responsibilities, and the provisions of the Handbook did not exclude the duty in Bowerman.

At appeal GW's contention that the transaction was governed by the CML Handbook, and that this was to be regarded as an exclusive definition of their duties to the lender was not upheld.  However the appeal was upheld on the grounds that TMB made the loan despite their possession of information that should have led them to question the surveyor's valuation, but still decided to make the loan.

It should be remembered that this was a claim by the Surveyor for a contribution, not a claim by the Lender who may have advanced different arguments.  Had Mr Gayler not given an incorrect price in his mortgage application, GW and their insurers could have ended up with a substantial contribution to the loss suffered by TMB. 

Guidelines on Managing Risk in Lender cases

Residential conveyancing remains the source of around 31% of all claims notified to insurers – cutting corners to save time could end up costing you money - in PII premiums, excesses, time and clients.

  • Never forget that the lender is also your client
  • Check the CML Handbook provisions, including those specific to the lender – don't rely on memory (eg Any transfer of the property within the previous six months must be reported to the lender)
  • Incorporate some form of check of the key Part 1 CML terms in your conveyancing process
  • Review the file (mortgage offers, office copies, estate agents' details), at least before closing it
  • Only senior members of staff should be authorised to sign Reports on Title, and they should always see the file before doing so
  • All staff doing property work should receive regular update training on the CML Handbook.  Build this into training logs and appraisal processes
  • Your firm's audit procedures should include a check that the CML Handbook has been followed, and issues identified and flagged appropriately

How Lockton can help

We can help you review your systems and procedures and or undertake a review of conveyancing claims to identify potential systemic issues.

We also provide firms with a range of Property Risk training - online or workshop based.

Contact our dedicated Solicitor Risk Manager for more information.