07 Mar Solicitor Certificate: Why solicitors don’t just “sign off” on bank documents
Like many other lawyers, we get enquires regarding Bank Mortgages and Guarantees and the paperwork a borrower or guarantor needs to be completed with a lawyer, sometimes called a Solicitor Certificate.
A lot of clients ring up and say “we just need to sign this in front of a lawyer- that’s what the bank told us- so it is a 5-minute job”.
When you quote them a price for up to 45 minutes or an hour or more of the lawyer’s work, they often say it is ridiculous because it is “just a signature”. What the banks never told them is that they need a Solicitor’s Certificate of Independent Legal Advice, not just a witnessing signature only (which for many documents any person over the age of 18 can do as a normal lay witness). Solicitor’s Certificate of Independent Legal Advice involves much more and rightly so for the protection of the consumer although the banks really rely on them to ensure they are not blamed if anything goes wrong later.
Until these new clients call our office, it usually has not been explained to them concerning the work involved and the legal obligations our lawyers discharge or risk being sued for or accused of negligence if anything goes wrong with the loan.
What is a Solicitor’s Certificate of Independent Legal Advice?
In Victoria, lawyers are governed laws and regulations not only in relation to the Credit Code affecting banks but also by the Uniform Law which we must comply with as well as the Law Institute of Victoria guidelines on giving these certificates. It is the same for other States with the same laws and with their own State compliance authority for lawyers.
The compliance is so strict that we can no longer even rely on the certificate forms the banks provide, the Law Institute of Victoria and our Professional Indemnity Insurer has requested only the forms approved by the Law Institute of Victoria should be used. For example:
Rule 11 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015 requires use of various forms referred to in that rule when Australian legal practitioners explain security documents to borrowers and guarantors, as follows:
Law Institute of Victoria Australian Legal Practitioner’s Certificate 1 (Schedule 1)
Law Institute of Victoria Australian Legal Practitioner’s Certificate 2 (Schedule 2)
So for starters, we have to draft up our own certificate forms.
How much work is it?
The legal work lawyers must undertake before any certificate is made will normally include the following work:
- Carefully reading of the loan contract, mortgage, guarantee and associated documents, at least the essential clauses if the general clauses are already in familiarity;
- Getting verification of identity from the borrower or guarantor- this is a job in itself by having to get various forms of photo id, completing a VOI checklist and identifying the person. VOI is compulsory wherever any land transactions are being made including entering into documentation for the registration of caveats and mortgages;
- After reading the documents and doing the verification of identify the lawyer then gives legal advice to the borrower or guarantor in relation to the general meaning of the loan contract, special clauses that may catch them out, interest rates and penalties and charges they will be up for, ascertaining whether it is in fact a commercial loan or consumer loan as different levels of advice are required, explaining what security property is used for the loan (a lot of borrowers don’t pick up that their home has been written into the contract as security for the purchase of an investment property) and many more aspects about the loan, obligations, rights of the bank/lender, what happens on default, the effect of enforcement and what assets can be claimed if there is default etc etc etc.
As you can see it is normally more than an hours’ work but a lot of lawyers will only charge for an hour when it is a good 2-3 hours work for some loan contracts and associated documents.
Consequences of not getting the solicitor’s certificate/proper legal advice
If not properly advised then it is possible that any of the following scenarios will occur:
- The guarantor is not fully aware that their own home can be used as security and sold if the borrower’s property equity is not enough to satisfy the debt on default;
- The loan is in a commercial format when should be under the Credit Code which gives the borrower more rights. By not having the conversation with the lawyer the borrower has just accepted the bank’s documentation as correct when it is not a commercial loan and limited their rights;
- Unseen fees and charges payable to either the bank or a procurer of the loan/mortgage broker will be taken out of your loan advance, simply because no-one bothered to get the paperwork checked;
- The wrong security property is used for the loan;
- The interest rate or terms of repayment are glossed over only for you to realise later what a bad deal you actually got.
How to keep legal costs down
It helps you to get a more accurate quote for the job if you drop off or email the documents so the lawyer can see what is involved. You wouldn’t normally get charged just to get a quote. that way you get an accurate quote and can decide whether or not to proceed, and the lawyer does not end up with any surprises either.
Always check the documents are all there; a lot of time that is wasted is in having to come back for a second appointment because documents were either left at home or the bank didn’t provide a full set.
Don’t be afraid to ask the lawyer preliminary questions or prepare a checklist of questions you have yourself about the bank documents.
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