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Casting a legal eye on Bridging Finance transactions: Diligence and Cybercrime Whilst still a relatively niche area of law, the concept of bridging finance has gained its own prominence. This is particularly so, in anticipation of a post Brexit climate, where mainstream lenders are being driven to re-capitalise rather than lend. Bridging finance is believed to have originated in the 1960s where it was mainly used for residential and buy-to-let properties. In the recent economic environment however, its fundamental characteristics have rendered bridging finance attractive in the commercial property sector. For example, bridging finance is used in property transactions to overcome the obstacles presented by time delays by creating a “bridge” between the participant’s immediate cash flow requirement and the eventual entitlement to funds. It provides short term liquidity to individuals and businesses alike. Due to the intrinsic flexibility that it must maintain, lawyers working in bridging finance face enormous time pressures. Many lawyers, particularly at smaller law firms, are still largely unaware of, or do not possess the necessary specialist resources to cope with the demands of bridging finance. As with any client, the relationship between a lawyer and a bridging lender is a service-oriented relationship which requires expert and specific knowledge on the lawyer’s part. A lender’s main concern is the value of the underlying security and the marketability of the property. Lawyers are therefore expected to be able to investigate title, verify the integrity of borrowers, deliver documentation adequately and meet the high demands of anti-money laundering checks. The fact that this must be done within a very short period of time makes bridging finance lawyers more susceptible to sophisticated crime including fraud and identity thefts. With respect to the increasing prevalence of cybercrime in transactional law, bridging finance is a highly vulnerable area. Fraudsters target short-term lenders due to their belief that highspeed bridging loan transactions means lighter due diligence which provides greater scope for criminality.
The ability to identify such risks ought to be deeply rooted in any experienced transactional lawyer practising in the short-term lending and bridging space. The case may not immediately attract the attention of lawyers acting for short-term lenders as it was largely a conveyancing case. The ruling however, is very relevant to any lawyer dealing in property transactions who retains funds in their client account for transactional purposes. When acting for lenders in short-term lending, the key is to be able to go beyond the surface issues of a bridging transaction and to ensure that lawyers have the confidence to advise and alert lenders on all potential risks posed in a bridging deal and in the perfecting of security. Lawyers should always keep an eye out for potential signs of unlawfulness such as mortgage debt free, high value and vacant unencumbered properties being sold and offered as security in a hurry. Given the inherent risks associated with bridging finance, it is essential that lawyers practising within the area adopt a more enhanced approach to due diligence to verify the identity of parties to transactions and to maintain a more robust client and transaction vetting and risk assessment process. Identifying and advising lenders of any requests for information that have not received a satisfactory response from borrower’s lawyers is of paramount importance. In such situations, it is vital for solicitors acting for lenders to obtain requisite undertakings from the borrower’s lawyers confirming they are satisfied with their checks regarding their client. As we advance into the digital age and vulnerabilities become further exposed, it is vital that lawyers are well equipped and well trained to mitigate the risks of falling victim to crime.
Bhoomika Beechouk Daddar
Trainee Solicitor, Sriharans Solicitors Therefore, lawyers in bridging finance are required to remain vigilant and to maintain a secure and resilient approach throughout a transaction. The much discussed “Dreamvar (UK) v Mischcon de Reya Case” addressed risk indicators or warning signs in property transactions that should have triggered alarm bells for the solicitors’ firm of Mischcon.
MEET THE REGULATOR OF SPECIALIST The Council for Licensed Conveyancers (CLC) was established in 1985 to foster competition and innovation in the conveyancing market. To find out more about how our experience as a specialist regulator of conveyancing and probate could help your legal business to thrive, why not visit the CLC Stand at LAW 2018 at Westminster Town Hall on the 13th and 14th March, and also at the Legalex event at London’s Excel on the 21st and 22nd March 2018.
22 The Bill of Middlesex