Dual Representation: Is it right for you?

At the heart of the bridging industry remains an issue which continues to cause a stir amongst the biggest lenders in the market.

Dual representation, a scheme devised to streamline the legal process, has become something of a taboo within the specialist world, despite being widely used within the mainstream mortgage market.

Within bridging, it can create an immediate conflict of interest, with a potentially groundbreaking detrimental effect upon the lender, should proceedings wind up in court.

Alternatively, lenders will favour using preferred legal professionals to represent both parties to avoid the increasing risk of
fraud within the market, in a time where fraudsters are becoming far more complex.

Eddie Goldsmith, Senior Partner at Goldsmith Williams, said: “Joint representation provides 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.”

However, dual representation can pose a significant risk to lenders, if a customer claims they did not receive independent legal advice, should the customer default on the loan.

Though, in reality, the process is actually used to benefit the borrower, with significant legal costs being reduced, and critically – for both the lender and the borrower – a significant amount of time is saved.

At a recent AOBP forum event, Marc Goldberg, Director of Blemain Group, claimed that he “didn’t even know it was possible” within the specialist market, a testament perhaps, to those that raise concerns over a conflicting interests.

One lender, who spoke on the panel at the AOBP event, is one of few within the industry endorsing the use of the streamlined service.

Alan Cleary, Director of Precise Mortgages, alongside his preferred conveyancer, Eddie Goldsmith, claimed that two out of every five deals with Precise is eligible for dual representation.

Speaking on the matter at the AOBP event, Alan said: “Lawyers are conflicted all of the time, as are lenders; it is how you manage that conflict that’s important… If we’ve got it wrong, we’ll pay the price.”

There are those that agree with Precise, despite the potential conflict of interest, claiming that the risk is warranted, when one considers the complexity of specialist finance. Specialist finance conveyancers are used for their obvious expertise when it comes to the bridging market; many lenders are sceptical about using unspecialised legal professionals, as they are unable to adhere to the efficiency demands of the specialist finance arena.

Ray Cohen, Partner at Jackson Cohen, said: “Bridging is not a standard mortgage and is of a higher risk nature. It is, therefore, entirely appropriate for lenders to insist that the borrower uses his own solicitor for independent advice on the risks and detail of the transaction.”

For a long time, 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.

Jonathan Newman, Senior Partner at Brightstone Law LLP offered a different perspective: “I have acted for key bridging lenders for a number of years, all of whom, without exception, take the view that the terms of their facilities, are quite specific, and include many terms which would not be commonly found in long term high street mortgage deeds – conditions which the borrower might not be familiar with.

“Further, these facilities are often put together and transacted at speed, when the borrower is under pressure to raise finance for a particular reason or purpose. For these reasons, it is in the borrowers’ best interest to be independently advised as to the nature, content and effect of the transaction they are entering into.

“From the lenders’ point of view, independent representation provides comfort that the borrower enters into the facility with full awareness, and without undue influence from them or their intermediary. Of course there is a cost to this, but that is minimal when set against the cost of default and dispute.”

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