A recent ruling by the Court of Appeal, reversing a decision against a solicitor's firm tricked by fraudsters, has drawn opinion from Edward Goldsmith, Chair of the Conveyancing Association.
In his statement, Mr Goldsmith called the Court's decision a "return to common sense", arguing that the burden on solicitors for checking other firms involving in a conveyancing transaction was previously thought to be excessive.
Verifying the other side
The Court of Appeal made it clear that there is only so much a Conveyancing Solicitor can do to verify the legitimacy of the Conveyancers acting for the other side, and that provided reasonable steps are taken, the Solicitor will not be held responsible for subsequent fraud carried out by the other side's firm.
In the original case, a solicitors' firm was held to be liable for the loss suffered by the mortgage lender, Nationwide Building Society, as a result of fraud by the other side's lawyers. The bogus firm were SRA-registered, and had been properly checked out, but the defendant had nevertheless been found liable.
The Court of Appeal found that no reasonable firm of conveyancers would have done more that the defendants, who relied on information provided by the Solicitors Regulatory Authority.
A matter of practice
The ruling will not significantly alter the obligations placed on a firm to carry out appropriate checks, but doubtless firms will breathe a sigh of relief, confident that they are doing enough. In Mr Goldsmith's opinion, the original decision was "manifestly unfair", and welcomed the decision, supporting the argument that it is fair for a firm to trust in the information provided to it by the regulator. If that information is inaccurate, the fault should not lie exclusively with the firm.
The impact on home buyers and lenders?
Fraud continues to impact mortgage lenders, despite the considerable efforts of both lenders and solicitors throughout the country to verify the legitimacy of parties involved.
It is reasonable to assume that lenders will be increasingly sensitive to mortgage fraud, in light of this decision, as another avenue for recovering lost funds has been narrowed considerably. What the long term consequences of this decision will be is hard to predict, but it will enable more firms to act with the confidence that they have done enough to satisfy anti-fraud requirements.
In turn, this may cut down on excessive and redundant searches on other parties' firms, potentially resulting in faster conveyancing transactions for buyers and sellers.