Peter Mericka, property lawyer at Lawyers Conveyancing, breaks down the conveyancing transaction and urges brokers not to become pawns of the banks in the process
Over the past two decades in the mortgage and conveyancing industries, I have observed that brokers have drifted from the role of advocate for the borrower to little more than a mouthpiece for the bank.
In other words, instead of representing the borrower to the bank, the broker now tends to represent the bank to the borrower. This has consequences for the relationship between the borrower and their own legal representative, and for the ethical standing of the broker.
Many banks and non-bank lenders are outsourcing the preparation of mortgage documents to large law firms, while others in-source this task to specialist teams.
As an example for the purpose of this article, I will assume that a borrower (Anna) has sought assistance from a mortgage broker (Harry), and that the chosen lender (Tier2 bank) has outsourced its mortgage preparation to a large law firm (BigLaw). I will also assume that the borrower has appointed a conveyancing lawyer (ConVey) to complete the conveyancing transaction.
BigLaw’s client is Tier2, Harry’s client is Anna, and ConVey’s client is also Anna. This much is clear. What is not as clear is the relationship that Harry and ConVey are believed to share with BigLaw and Tier2, and how this relationship may conflict with the duties Harry and ConVey owe to Anna.
How brokers unwittingly perpetuate the ‘BigLaw’ extortion scam
When Harry prepared Anna’s initial loan application he entered ConVey’s details as Anna’s legal representative. Anna did not retain ConVey for the purposes of providing services to BigLaw, but because they were included BigLaw has decided ConVey is now at its disposal.
BigLaw informs ConVey that it represents Tier2, and sets a number of tasks, deadlines and conditions for ConVey to perform. BigLaw says settlement cannot be booked unless ConVey completes these to BigLaw’s satisfaction. BigLaw expects that ConVey will either absorb the costs, or that ConVey will pass these costs on to Anna (which means Anna is paying for work BigLaw has already been paid to perform by Tier2).
BigLaw uses a scam that involves telling ConVey in a letter that if it does not perform these tasks, BigLaw will not allow ConVey to book settlement.
If settlement can’t be booked, BigLaw will not deliver the required funds for settlement, and settlement will be delayed or cancelled. Anna will then hold ConVey responsible for the failed settlement. To make sure that Anna will blame ConVey, BigLaw tells Anna at the outset that her settlement will be jeopardised unless ConVey ‘cooperates’ with BigLaw by fulfilling all of its requirements.
ConVey realises that both it and its client are being exploited, and it refuses to provide free services or to extract costs from Anna for the benefit of BigLaw. This is where BigLaw calls on Harry to keep ConVey under control.
BigLaw emails Harry and tells him that settlement is likely to be delayed because ConVey is not cooperating and there are outstanding requirements that must be fulfilled before settlement can be booked. Harry then writes to ConVey, making it clear that ConVey is failing to protect Anna and that he expects ConVey to “do the job Anna’s paying you to do”. Harry cc’s Anna on the email and Anna lets ConVey know that she will hold ConVey responsible if settlement is delayed.
ConVey tries to explain to Anna that Tier2 brokerand BigLaw are working against her, but Harry steps in to convince her that it is ConVey’s role as her conveyancer to do as Tier2 and BigLaw demand. Harry maintains his relationship with Anna, and Anna turns on ConVey for failing to provide the level of service and protection she was paying for.
ConVey loses Anna as a client and accepts that perpetuating the scam is necessary for its own survival in a highly competitive industry.
"Brokers have drifted from the role of advocate for the borrower to little more than a mouthpiece for the bank"
Tips for brokers to avoid becoming conflicted
The BigLaw scam is gradually being exposed and challenged, and it will not be long before brokers who facilitate it will be called to account for their conduct.
My advice to brokers is to not fall into the trap of becoming unwitting advocates for banks or the law firms representing them.
Brokers are professionals who are being paid a fee for service. A broker’s responsibility does not end with the submission of a loan application. Rather, it starts with the loan application and does not conclude until settlement.
It is essential to determine and maintain a clear distinction between the roles of each professional representative in order to ensure that legal and ethical responsibilities are maintained and clients’ interests are protected. Always ask, “Who is my client?” While the bank may be investing in the broker by way of commission, the borrower is investing in the broker by way of trust.
The broker should assume that the bank will obtain any documents or information it requires from its customer, and not expect the broker to do so. If the broker becomes involved in satisfying the bank’s requirements, it should be as a courtesy to the client, and not because they are fulfilling a demand of the bank.
If the bank makes any threat to delay settlement, the broker should see the bank as threatening to harm the client, and take the bank to task.
The borrower’s legal representative is not appointed to assist the bank or the broker, and so neither should call on the borrower’s legal representative for assistance.
The broker should never tell the borrower that their legal representative will or should become involved in the loan transaction without first confirming that this is clearly included in their engagement agreement.
Legal practitioner at Lawyers Conveyancing in Melbourne, real estate agent, consumer advocate and former mortgage broker