2011 Q2 Conveyancing Periodical- Risky Business

June 2011

By Phillip Oldcorn, Senior Vice President at FAF International 

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Here's a suggestion for an interesting game for the conveyancer's office. Ask your next few clients how they think risk is managed in their conveyancing transaction.

Agree amongst the staff a selection of possible answers; the Land Registry, the conveyancer is responsible for all conveyancing risk, the Law Society will protect me etc. Do a sweepstake for the answers amongst the staff.  Sit back and enjoy the game!

The correct answer is that there are several factors which mitigate most but not all conveyancing risks.  Think of the following: good quality conveyancing practice, a (limited) Land Registry guarantee, PI insurance. But how often do we stop and consider the uninsured risks that the best conveyancer cannot prevent? How can we cater for a dishonest seller? Why doesn't anyone measure and/or GPS the boundaries of a property? How can we protect those most vulnerable to mortgage or identity fraud?

Isn't it odd that the consumer (not to mention the lender) isn't curious about risk and doesn't have the chance to insure, for themselves, their biggest financial commitment and family home? There is a real consumer blind spot and lack of curiosity about the subject. This was apparent when we canvassed views last year and it was reinforced when we surveyed 207 conveyancers this spring. Consumers are initially uninterested about this crucial area. However, they soon become passionate about it when the complex web of insurance/state guarantee and uninsured risks is properly explained to them.

Many extremely competent conveyancers exhibit a similar blind spot. Again, they quickly reach the same conclusion when they stop to think about how adequate current risk management processes and safety nets really are. How do we reconcile our duty to provide clients with a good modern standard of best practice in light of this? How can we be fully discharging our responsibility as trusted professional advisers if systematically clients do not properly understand conveyancing risk? It seems that whilst the vast majority of conveyancers make a thorough, honest and professional job of conveyancing, we do not fare so well managing the clients' knowledge and expectation of where the risks are and how they are managed.

In our straw poll of consumers we even had a chartered surveyor, who is of course very familiar with risk and his own PII, scratching his head. Timing was good for him as he was in the middle of a barn conversion purchase and had spotted three different issues with his proposed ownership interest. Reviewing many PII claims, a common theme is quickly obvious. So many PII losses are not the result of poor advice around complicated areas of law. Claims tend to revolve more around process failures, administrative errors and particularly the failure to prove that advice had been given on the disputed issue.

Our recent research among 207 conveyancers shows another alarming feature:  the obvious uninsured risks mentioned earlier, seller misrepresentation, boundary disputes, fraud and building regulations regularly seem to present practitioners and their clients with difficulties. Of our survey, 5% had experienced seller misrepresentation, 25% boundary issues and 32% building regulations or planning issues, which the typical consumer will often struggle to spot when they view the property. When the same 207 conveyancers were shown new insurance products which insure the client directly against identifiable and unidentifiable conveyancing risks, without the need to prove negligence, 88.5% were interested in using these within their practice and 73% said they would recommend this insurance option to their clients in future.

Perhaps the SRA is thinking of addressing these shortcomings? A brief look at their latest topic for review, 'Draft supervision and enforcement strategy for conveyancing', includes the following comment:

"The systems and controls firms decide to put in place to address the conveyancing-related risks will be a matter for professional judgement taking into consideration the following:

  • the size and complexity of the firm,
  • the nature of the conveyancing work undertaken (e.g. "e-conveyancing"),
  • the firm's client base (e.g. are clients local or national?).

"Key to the successful implementation of systems and controls to manage and mitigate conveyancing-related risks will be the generation within a firm of a "risk culture" amongst all employees. Managers will play a vital role in championing this approach and embedding a "risk culture" within the firm so that it influences every aspect of conveyancing work.

"We will test the effectiveness of a firm's systems and controls for managing the risks associated with conveyancing. We will engage with firms to help them manage and mitigate risks....Ultimately, responsibility for the implementation of effective risk management systems and controls remains with a firm. However, enforcement action may be taken against an individual if they are particularly culpable."

A better awareness of conveyancing risk and innovative ways of managing it are in the interests of the whole legal profession. By managing risk in most clients' largest financial commitment, we will also be better managing the legal profession's largest area of losses. Bringing these under control will not just have a beneficial impact on consumers and lenders.

Phillip Oldcorn is a non-practising solicitor and worked in private practice before joining First Title Limited in 1995. After establishing First Title in the UK, he spent two years with First Title in Australia before returning in May 2005 to develop the European market. Phillip is now Senior Vice-President for FAF International, a trading style for First Title Insurance plc in Europe and Turkey, focusing on new products and new markets.

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