Part 1 was last updated in August Following on a number of recent changes in law and practice, the CML has introduced a number of further amendments to part 1 which are effective from 1 December There have also been a number of recent developments in Scots law which have necessitated new instructions and guidance being provided in the Handbook.
This article highlights a number of the main changes and will hopefully provide the context in which the changes have been made. The first major amendment to part 1 is to remove the detailed provisions regarding checking evidence of identity from clause 3, along with the list A and list B documents.
These changes reflect recommendations made by the Joint Money Laundering Steering Group towards a more risk-based approach in this area. The rules imposed by the Law Society of Scotland in this regard, coupled with the requirements of the Money Laundering Regulations, are considered by the CML to provide more than adequate safeguards to mortgage lenders.
The reference in clause 3. The original clause 3. Clause 5. The previous clause 5. There is no longer a time limit on the age of the coal mining report. This is also in light of the ability to obtain coal mining reports relatively cheaply and quickly.
In terms of clause 5. The clause has been amended to make it clear that this obligation is not limited to the original construction of the property, but also covers subsequent alterations to the property which are material or significant.
The CML has stopped short of imposing a time limitation for investigating historical alterations as it does not consider that it is its role to lead the market in this debate. The Tenements Scotland Act has introduced detailed provisions affecting flatted properties relating to the maintenance and repair of common parts and services.
Reference to the maintenance of the foundations of the building has been removed. The lender is relying on the solicitor to take reasonable steps to check that the real burden is not enforceable. If the solicitor is unable to provide an unqualified certificate of title as a result of the risk of enforceability, then they are to ensure that indemnity insurance is in place at settlement.
Under the Act real burdens can now be extinguished by acquiescence or by negative prescription and clause 5. The previous reference to breaches of title conditions continuing for more than the long negative prescriptive period of 20 years has been removed.
Clause 6. The exceptions to this are a a deposit held by an estate agent, or b a reservation fee paid to a builder or developer. In recognition that builders and developers are looking for higher and higher sums by way of reservation fees, the financial amount set in clause 6. This is the next major amendment to part 1, affecting properties let at settlement. It reflects the introduction of licensing requirements for landlords under the Antisocial Behaviour Scotland Act , and in relation to houses in multiple occupation under the Civic Government Scotland Act Licensing of Houses in Multiple Occupation Order , as amended.
A new clause 6. What parts do you want to see? Part 1 only. Part 1 and Part 2. Part 2 only. Part 3 only. Nothing in this section overrides a solicitor's duty to the lender via the instructions provided elsewhere in the CML handbook. Unless the lender says differently in its CML handbook part 2 a solicitor must report to the lender if he becomes aware of any of the following arrangements:.
Any of these arrangements might cause the lender to withdraw or amend the mortgage offer therefore you should of course first obtain the borrower's authority and should make the report prior to exchanging contracts and not exchange until you have the lender's response.
A solicitor should have full control of the purchase price. If you will not, perhaps because the buyer has paid money to the seller directly, you must report this to the lender unless it states otherwise in the CML handbook part 2 or in the mortgage offer. Unless the offer states that it is a buy to let offer then vacant possession must be obtained at completion and this must be a condition of the contract.
If the solicitor believes that the property will not be vacant which includes situations whereby the purchaser agrees to let the seller stay on, even if only for one night then the mortgage advance must not be used and the situation must be reported to the lender. If the purchaser is buying the property with the intention of letting it then you must first check that the mortgage offer is a buy to let offer.
If this is not obvious from the offer then the fact that the property will be let should be reported to the lender and the lender's further instructions awaited. The mortgage offer will usually set out the lender's requirements in terms of a tenancy agreement. Some lenders will require a counterpart or certified copy tenancy agreement to be sent to them on completion - check CML handbook part 2.
Where a property has been built or converted within the last 10 years it must have the benefit of a building standards indemnity scheme. The lender's CML handbook part 2 will list all the schemes which are acceptable to them.
The two main schemes are NHBC and Zurich the Zurich scheme is closed to new properties but existing cover is still valid. If the insurance certificate is not available on completion as will be the case for brand new properties a cover note which confirms that the property has been subject to a satisfactory final inspection must be supplied prior to release of the advance.
For new build properties it should be a condition of the contract that a cover note will be supplied via the seller's solicitor at least 10 working days prior to completion. If no such scheme is in place, and the property has been built or converted within the last 6 years, then check the lender's CML handbook part 2 to see if they will lend. Check the lender's CML handbook part 2 to see if they require the professional consultant's certificate to be sent to them on completion. In the case of roads this will usually be a section 38 agreement and for sewers a section If it is intended that the roads will remain private and be maintained by the frontagers or by a management company then this is acceptable provided that in the opinion of the solicitor there are satisfactory arrangements in place with respect to maintenance and repair costs.
There may be an arrangement in place between the developer and the lender whereby it is agreed that no retention needs to be held. If this appears to be the case a solicitor must check with the developer that the agreement is still in force at completion. A solicitor must check that the property has the benefit of all necessary rights and that those rights are enforceable by both the borrower and the borrower's successors in title. If the borrower owns land adjoining the property, over which access to the property is gained or services drains, cables etc cross, then this land must also be mortgaged to the lender.
If the lender makes a retention, that is to say holds some money back from the mortgage advance pending some action being performed for example some repair or improvement works then the lender is not obliged to release it if the condition is not fully satisfied, the borrower is in breach of some other mortgage condition or if the loan has been repaid in full.
A solicitor should not therefore give an unqualified undertaking to pay the retention to a third party and should not rely on it for fees etc. When the lender does release the retention it may either be sent via the solicitor or direct to the borrower - this will be stated in the lender's CML handbook part 2. If the searches or enquiries reveal that the property is in an area scheduled for redevelopment or is in any way affected by road proposals then the CML handbook states that this must be reported to the lender.
The solicitor must ensure that none of the above exist which will affect the lender's security. If there are these must be reported. Such things as a right of first refusal for the local authority in respect of the sale of a right to buy property or for a housing association in respect of a shared ownership property are often acceptable since they require that the purchaser pays the full market value for the property and there are usually reasonable time limits for exercising the rights, but they should still be reported.
If the property is subject to the above which will still apply following completion check the lender's CML handbook part 2 to see if it needs to be reported. Lenders require that either the buildings insurance policy for the property be taken through themselves or else that it meets certain criteria.
Each lender's criteria are slightly different and the CML handbook part 2 instructions should be consulted along with clause 6. Some lenders will also require confirmation that the insurer will inform them should the policy be cancelled or not renewed, and some will require a copy of the policy to be sent to them on completion. If there will be anyone aged 17 or over in occupation of the property on completion other than the borrower s or tenants if the mortgage is buy to let then unless the lender's CML handbook part 2 instructions say different, each of these people needs to sign a consent and waiver in the lender's standard form, in which they consent to the mortgage and waive any rights of occupation they may acquire in favour of the lender.
This is so they cannot claim any right to remain or financial interest ranking ahead of the lender's charge should the lender repossess.
Even you are told that the occupier will only be staying for the short term, a consent and waiver is still required. This includes students who spend part of the year away from home provided the property is still their main home when not at university.
If you have any reason to believe that the information given by the borrower as regards occupiers is incorrect or misleading you should, with the borrower's consent, report this to the lender. If the borrower does not consent you must cease to act in the transaction, citing a conflict of interest. The solicitor must not give advice to either a guarantor, an occupier who will be signing a consent and waiver or any borrower who will not personally benefit from the loan.
Some lenders will allow advice to be given to such people check CML handbook part 2 , on the condition that they have first been advised, in the absence of anyone else interested in the property, that they should seek independent legal advice. Any advice then given should be in the absence of anyone else interested in the transaction. Even though some lenders allow advice to be given to guarantors and occupiers etc. Please see the separate chapter on Legal Indemnity Insurance for a fuller discussion on the subject.
When obtaining insurance where there is a mortgagee you must approve the terms of the policy on the lender's behalf - only send a draft policy for approval is specifically requested by the lender. You must ensure that the policy is obtained without cost to the lender and that the limit of cover meets its requirements.
A full disclosure of the facts surrounding the defect which is being insured should be made to insurer and the policy should not contain any conditions which would make it void or would prejudice the lender's interests. You must explain to the borrower that he take any further lending against the property an additional policy may be required and you must explain the conditions and that he must comply with them.
The policy should always cover the lender. It may not cover the borrower in some cases and if it does not then the borrower must be informed of this. The certificate of title is a certificate confirming to the lender that, in the solicitor's opinion, the title to the property is good and marketable see the section Mortgage Offers for more information.
It should not be submitted unless either it is unqualified or else you have been authorised to proceed in writing by the lender notwithstanding any issues you have raised with them. The certificate will be treated as a request for the advance to be released and you must check the lender's CML handbook part 2 to see whether the funds will be released electronically or by cheque, what standard deductions the lender will make and crucially, how much notice the lender requires from receipt of the certificate to release of funds.
If a proposed completion date is too soon to allow time for the lender to be given the required notice then contracts should not be exchanged until the funds are received.
It is sensible for a solicitor to request funds for the working day before completion so that any delay in receiving the money on the day it will usually be sent by CHAPS and so could arrive any time before close of business will not delay completion. It should be noted that some lenders automatically send funds one day early and the solicitor should check this. The mortgage advance should not be used unless the solicitor has all that is necessary in order to register the transaction and the lender's charge - that is to say funds to pay the stamp duty and registration fees, either a correctly completed and executed Stamp Duty Land Tax return or authority from the borrower so that the solicitor may complete the form on his behalf, undertakings given in replies to requisitions by the seller's solicitor to forward a signed transfer deed and to redeem any existing charges and a mortgage deed correctly executed by all borrowers.
If, after requesting the advance, you learn that completion will be delayed, you must inform the lender immediately and advise them of the new completion date if known. If the advance has already been released check the lender's CML handbook part 2 to see how long it can be held before it must be returned. If it needs to be returned the solicitor should check with the lender' CML handbook part 2 how this must be done. Some lenders will have a specific account for funds returned, others will only accept a cheque.
You should also ask the lender how long it will be before the funds can be re-released. If completion is delayed but the lender is not informed they will assume that completion has taken place and will begin charging interest to the borrower and debiting payments. The mortgage deed which the borrower must sign will incorporate the lender's standard mortgage and if applicable loan conditions, and this should be explained to the borrower as should the implications of taking a charge against property.
If a conditions booklet is supplied by the lender this should be given to the borrower. The CML handbook states that it is good practice that the borrower's signature to any document associated with the mortgage is witnessed by a solicitor, legal executive or licensed solicitor, however this is rarely done unless the lender specifically requests it in which case it will be clear from the document.
Generally any adult, who is neither related to the borrower nor an interested party in the transaction nor anyone who will after completion go into occupation of the property, will be sufficient as a witness. Instalment mortgages are typically used for self-build projects. Generally, substantial progress will need to have been made on the project sufficient to make it clear that the borrower genuinely intends to proceed before any funds will be released save for a nominal sum which may be released on submission of a certificate of title to enable the mortgage to be completed.
Before any funds are released, including the initial nominal sum, the legal title must be vested in the borrower. After the first instalment, which will be paid to the solicitor, the instalments may be sent to the borrower directly. On application for an instalment the lender will want to carry out a valuation and will therefore require 10 working days' notice.
Mortgage indemnity insurance is usually obtained by a lender when they are lender more than a given percentage of the purchase price, so that there is a risk that on repossession they will not recoup all their lending and costs. The policy is paid for by the borrower, usually added to the total loan. It is a CML handbook requirement that it is explained to the borrower that the policy covers the lender only and that if the lender makes a claim the insurer has a right to pursue the borrower to recover the amount paid, so that as far as the borrower is concerned the debt is not written off.
The lender's charge must be registered as a first legal charge and prior to submitting the application for registration the solicitor must take copies of the transfer deed, mortgage deed, discharge documents such as a DS1 or DS3 and must certify those copies as being true copies of the originals. If the purchaser is a company then the charge must be registered at companies house within 21 days of completion using form or whatever form is current at the time, check with Companies House.
It is absolutely vital that the charge is properly registered in time - if the deadline is missed then Companies House will only register the charge if the court orders them to do so. This would obviously be extremely costly and time consuming for the solicitor.
The application for registration must be submitted to the land registry prior to expiry of the protection afforded by the original Official Search in the case of registered title, or within 2 months of completion in the case of unregistered title. The lender may require the original mortgage deed to be sent to them after registration check their CML handbook part 2. If so, a certified copy must be sent to the land registry along with the original - if it is not then the original will be destroyed.
Following completion any title deeds, search results, enquiries etc should be held to the lender's order. The solicitor should write to the lender if the registration is not complete 3 months following completion with an explanation of the delay together with copies of any relevant correspondence. When registration is complete check the lender's CML handbook part 2 to see what documents they wish to receive, and send only those documents.
The remainder should be sent to the purchaser. The file in respect of the transaction must be retained by the solicitor for at least 6 years before being destroyed. This can be done by taking an electronic copy of the file. If the borrower demands the file following completion as is his right under the Data Protection Act then full copies, certified where appropriate, must first be made.
It is common practice for a fraudster to demand the file in this way in an attempt to destroy evidence. When processing personal data, the CML handbook states that you must put in place security measures sufficient to enable you to comply with the 7th data protection principle defined in the Data Protection Act , must only process data in accordance with the lender's instructions and must allow the lender to carry out audits so that they can ensure compliance.
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