THE slowdown in the property market could lead to a rise in liability claims against professional advisers, a Liverpool property lawyer has warned.
Phil Rees-Roberts of niche property firm Rees-Roberts Solicitors has warned that solicitors are facing an increased risk of being sued as lenders look to assign blame for investment losses arising from borrower’s defaults or repossessions.
He says the current situation mirrors the recession of the 1990s, when a spate of claims revealed that a small minority of solicitors, valuers and surveyors were guilty of low-level mortgage fraud because of negligence or noncompliance with reporting standards.
In an attempt to prevent the same happening again the Law Society has announced that it is sending practice notes out to law firms which detail the warning signs and steps solicitors can take to protect themselves.
Mr Rees-Roberts said: “In a downturn people look to explain their losses – lenders will want to recoup costs on bad investments and look for scapegoats. Instead of lenders accepting that their lending criteria were the major cause of losses expect to see advisers come under fire.
“However, with today’s higher reporting standards it’s likely that the majority of these claims will turn out to be genuine mistakes, rather than traditional fraud. Unfortunately, these mistakes could still cost advisers dearly.�
Examples of these mistakes include a technical breach of reporting regulations, such as the buyer not supplying the proper ID or checking the source of deposits or funds.
Mr Rees-Roberts added: “The blame game is an artificial process. Mistakes may have been made by all parties, not least by the borrowers themselves as people rushed into the market to avoid missing a good thing. Greedy borrowers and lenders may have encouraged each other to fuel unwise investments.
“Hopefully courts will take a pragmatic view when it comes to apportioning blame and lenders shouldn’t necessarily expect an easy ride. The courts may have expected lenders to have learned from the mistakes of the past and made mortgage criteria stricter.
“However, that’s not to say that this process won’t reveal a minority of cases of sophisticated fraud against the lender. Examples of dubious practice, such as failure to identify less than candid behaviour by borrowers, a developers discount amounting to devaluation or evidence of a back to back transaction could well be unearthed. In these cases I’m sure the courts will take a hard line.�