Property Solicitor Negligence and Valuation
In the recent case of E.Surv v Goldsmith Williams Solicitors [2014] the court found a solicitors firm was equally liable with a surveyor regarding negligent mortgage valuation.
In this case, the surveyors, E.Surv, sought a contribution from Goldsmith Williams (the solicitors who acted for both the borrower and the lender) in relation to its liability for £200k of damages to a lender for lending on an over-valued property. The surveyor alleged that the solicitor failed to provide the lender with information it had obtained about the value of the property in question.
Essentially the lender had lent money to its borrower without being made aware of the true nature of the situation and the extent of its risk. The borrower later defaulted with his payments and this subsequently caused the lender a loss.
A breach of contract
The surveyors’ case was that the solicitors had committed a breach of both express and implied terms of the contract they had with the lender. The solicitors had a duty to inform the lender that the borrower had been registered as proprietor of the property for less than six months, in accordance with the Council for Mortgage Lenders Handbook (“the CML handbook”) and the Solicitors’ Practice Rules 1990. Further the surveyors argued that the solicitors should have, upon discovering that the borrower had paid only £390,000 for the property originally, notified the lender that this price was significantly less than the surveyors’ valuation which was included within the mortgage application which was £725,000.
The surveyors argued that had the solicitors performed their duty, the lender would have asked the surveyors to reconsider the valuation of the property in light of the disparity between the valuation and the purchase price of the property. At that point, the surveyors contended that they would have informed the lender that they had been misinformed by the borrower as to the purchase price. The surveyor stated that the borrower had informed him that he had paid £600,000 for the property. Ultimately, their case was that the outcome of such a scenario would have been that the lender would not have lent the money to the borrower.
Were the solicitors responsible?
Whilst the solicitors admitted breach in their failure to inform the lender that the borrower had been registered proprietor for less than 6 months, they did not believe that they owed a duty to disclose information as to the purchase price. Their case was that, in any event, this would not have caused the lender to have asked for a re valuation and neither would the disclosure of the price paid, have deterred the lender from lending.
The solicitors were under a duty to act as a reasonably competent solicitor would when acting for a mortgagee. Further the CML handbook placed an obligation on the solicitors to take reasonable steps to verify that there were no discrepancies between the description of the property as valued and the title and other documents which a reasonably competent conveyancer should obtain and, if there were, the solicitor was obliged to tell the lender immediately. The surveyors argued that the ‘Bowerman duty’ had arisen in this case. The Bowerman duty derives from the decision of the Court of Appeal in the case of Mortgage Express v Bowerman; it places a duty on a solicitor to report to his lender client matters relevant to the valuation of the property which is offered as security for a loan.
A breach in duty
The High Court found that the solicitors were liable. Judge Stephen Davies states “It follows that I am satisfied that the Bowerman duty arose in this case. Whether or not it applies in other cases will, in my judgment, depend upon the source of the information in question.” In this case it was an HM Land Registry search that revealed to the solicitors the discrepancy between the price paid for the property and the valuation figure.
This search fell within the category of appropriate searches relating to the property in public registers that the solicitors were obliged to conduct. Had the solicitors notified the lender of the disparity, the lender would naturally have reverted to the surveyor to take another look at the valuation. The surveyor would then have become aware that the borrower provided incorrect information and that the borrower had paid less than stated. The High Court held that this would have resulted in a significantly downwards revised valuation. Even in a rising market the lender would not be prepared to lend more than the sanctioned 85% loan to value ratio in such circumstances. The result would have been that the transaction would have ceased to go ahead.
Whilst it could be said that the initial fault lay with the surveyors, the solicitors’ breach of duty in failing to bring the disparity to the lender’s attention resulted in them being equally liable.
Whilst the surveyors did not seek to recover from the solicitors all of the monies that they had paid to the mortgage lender, they felt that they were entitled to a substantial contribution from the solicitors for the negligence that the solicitors engaged in. Judge Stephen Davies concluded that, “There is no basis in my judgment for regarding the solicitors’ blameworthiness as significantly less than the surveyors.” The surveyors were entitled to judgment against the solicitors for £100,000, plus interest.
This case highlights that solicitors should embrace best practice and report any potential issues on valuation so as to avoid incurring liability.
Clients place trust and faith in their solicitors and in return for this, rightfully expect good service. Unfortunately, this is not always the reality and the conduct of many solicitors falls below the standard of a reasonably competent solicitor. Whether this is through missing important deadlines, failing to provide clients with accurate and suitable advice or omitting to undertake appropriate land searches. Here at Redress Law we have comprehensive experience in dealing with solicitor negligence and can use our expertise to confidently and properly assist you with any potential solicitor negligence claim you may have.
