More on the scope for avoiding the increase in conveyancing claims forecast by Master Policy co-insurer Zurich as a consequence of increased property transaction activity

In this issue, the focus is on three other areas of risk which have been major factors in the Master Policy claims experience in recent years, most significantly risks associated with acting for lenders and the continuing exposure to external frauds and scams.

Lenders’ instructions

The downturn in the property market, coupled with widespread borrower default, resulted in substantial losses for lending institutions. In many instances, lenders have blamed solicitors for part of their losses and large numbers of claims have been intimated to and paid by the Master Policy insurers over the past few years. These claims have impacted heavily on the Master Policy premiums for both the practices concerned and the profession as a whole.

Claims by lenders very often allege breach of contract, on the basis that the terms of the lender’s instructions have not been fully complied with (for example, the reporting requirements of the CML Handbook). Lenders often argue that had certain facts been reported to them, they would not have proceeded with the loan.

We all hope that history will not repeat itself and that we will not experience again the extent of borrower default, reduction in property values and resulting lender losses. However, those are matters over which none of us has control. What we can control, and hopefully eliminate, is the incidence of non-compliance with the CML Handbook.

The Law Society of Scotland produced a checklist incorporating the small number of Handbook provisions on which lenders have founded the majority of their many claims over the past few years.

Risk controls

  • Consider adopting the Law Society’s CML Handbook checklist, or incorporating its key points in to your own checklist/case management/workflow.
  • If in doubt, report.

Await receiving the lender’s instructions before proceeding. Reporting by itself does not satisfy the strict requirement of the CML Handbook – which means it isn’t safe to assume that the lender sending the loan monies signifies that the lender is content to proceed.

In relation to commercial property transactions, lender claims have tended to arise not so much as a result of failures in reporting, but more so as a result of failure to achieve the lender’s required ranking priority, or failure in registration of deeds.

Registration of deeds

Failure to register deeds timeously, or at all, continues to be a cause of Master Policy claims.

This may arise because of an administrative oversight. Sometimes the delay or failure in registration is the result of deeds being returned unregistered because queries raised by the Keeper have gone unanswered.

Insurers were particularly concerned about the potential for claims, while the recession heightened the risk of default and made prompt registration even more critical for the protection of lenders and purchasers alike. Improved property market conditions are very welcome, and likewise increased transaction volumes. Insurers tend to equate increased activity with increased risk. With effective risk controls in place, increased risk needn’t mean increased claims.

Risk controls

  • Ensure there are reliable procedures in place to ensure that deeds requiring to be registered are submitted timeously.
  • Make it a matter of priority to respond to queries by the Keeper promptly.
  • Consider conducting an audit or review to provide confidence that the procedures are operating reliably and consistently.

Exposure to frauds and scams

Recent issues of this column and risk alerts issued by Marsh and the Society have warned the profession of the determined and sophisticated efforts of the criminal fraternity to steal from solicitors’ client bank accounts. Awareness, vigilance and effective controls are all required if the criminals’ efforts are to be thwarted.

This particular type of fraud evidences the sophistication of fraudsters and the efforts they go to in taking advantage of opportunities and devising the modus operandi to achieve their objectives. The challenge for solicitors (as for professional practices and other businesses in general) is avoiding exposure to the fraudster altogether, or detecting situations where they are being engaged to facilitate some form of fraud, and responding appropriately.

The inventiveness of fraudsters means new forms of scam continue to be devised. For that reason, effective avoidance/detection starts with client and transaction vetting. As well as keeping up to date with risk alerts and other information on financial crime exposures, awareness of potential “red flags” is an essential risk control, as this case study illustrates:

Case study

A Stirling solicitor had been out of the office longer than planned and was pleased when his secretary reported that she had dealt with a number of issues in his absence, as well as setting up an appointment for him to see a new client. A Mr Dodge had called at the office while the solicitor was out, and his secretary had taken down some details.

Dodge is purchasing a two bedroom flat in a new development in Edinburgh. According to the secretary’s notes, Dodge, from Arbroath, has agreed a price with the seller, obtained a satisfactory valuation, and organised a loan. At £550,000, the purchase price is well above the price range of local properties the firm has dealt with over the past 18 months, but the transaction seems likely to be fairly straightforward.

Is there any evidence of dishonesty on Dodge’s part? Could the proposed purchase involve some sort of fraud or scam? Without knowing more about the transaction, it’s impossible to say. However, there are aspects which might justifiably put the solicitor on guard. Why, for instance, is Arbroath-based Dodge engaging solicitors in Stirling in connection with the purchase of property in Edinburgh? Does this make sense? There may be a perfectly legitimate explanation, but be alert to “red flags” which could be indicative of something else.

No matter how busy you are:

  • don’t lower your guard against exposure to frauds and scams;
  • keep up to date with alerts;
  • don’t cut corners and let yourself and your practice be viewed as a soft touch.

Alistair Sim and Marsh

Alistair Sim is a former solicitor in private practice, who works in the FinPro (Financial and Professional Risks) National Practice at Marsh, global leader in insurance broking and risk management. To contact Alistair, please email The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues. Marsh Ltd is authorised and regulated by the Financial Conduct Authority. 

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