Five reasons why we might turn down a borrower client

By Fiona Callaghan and Nick Mann, associate solicitors at Seddons

The current economic climate and slow property market has led to expansion and creation of new opportunities in the specialist finance space. Healthy competition and a greater variety of products can only benefit the industry and attract more borrowers to the market. Greater demand, on the other hand, leads to increased pressure on the legal side, not only to ensure we can act for the borrower client but also to get the job done. However, there are some instances where that might not be possible.

1. With new lenders emerging and inexperienced underwriting teams, there can be more relaxed requirements on the KYC/AML side, leading to opportunities for fraudsters. Meeting with the borrower and obtaining valid ID and proof of address documents is of paramount importance. An issue would arise should a borrower be unable or unwilling to produce these documents, or to meet with their the solicitor to sign the relevant security documents.
2. If a borrower client were to disclose material information leading to a change in their circumstances - altering the purpose of the loan - and they did not want these details disclosed to the lender, this would create a big headache (in addition to a barrier) to being able to proceed. This can be prevented by good communication at the outset and making sure the borrower is aware of the terms and requirements of the financing.
3. Most lenders’ solicitors will not start work until they have their costs taken care of from the borrower’s solicitor. Borrowers must therefore be prepared to pay funds up front for lenders’ legal fees (as well as funds on account for their own solicitor). An inability to provide these would be an obstacle in acting for the borrower.
4. If the borrower is unable to satisfy the lender’s requirements on the conveyancing side, we would advise them of this. Examples that may be unacceptable to lenders would be a short period of ownership (ie less than six months), inability to obtain insurance for the building or development, or recent breaches of lease terms/building control/planning that are uninsurable from an indemnity insurance perspective. Specialist lenders will make decisions on whether to proceed in these circumstances on a case by case basis.
5. If there is reason to suspect that a party (or connected party) is under undue influence to enter into a loan, personal guarantee or deed of postponement, or after being given independent legal advice does not want to proceed, this may prevent completion. It is vitally important that the necessary steps, such as occupiers/guarantors being given proper, independent legal advice, are taken to ensure there is no undue influence on a party.

In summary, borrowers and their advisers should ensure, as a starting point, that the above points can be satisfied. If there are any issues, this should be disclosed to the lender as part of the application process so a decision on lending can be made early on, rather than wasting time and legal costs. Essentially, if a borrower can get all their ducks in a row at the outset, this will lead to a smoother and more efficient transaction.