I’m aware of this case that Simon Zutshi has just written about on his blog. It’s a tough one with so many parties involved but you’re right, a lawyer should be looking after the best interests of the client at the time and not providing financial advice.
Did he back it up with a guarantee that he’d cover the difference, should things not work out as expected? I didn’t think so…
Unfortunately I know of another lawyers / solicitor / legal ‘advisor’ who seems to think that whatever the money men (banks) say is the truth without actually really being able to apply the legal rules in specific circumstances. They tend to open the text book at a certain page and say that’s how it is or discuss things that they have no idea or experience about. There’s nothing worse than bad legal advice from someone who doesn’t have any attachment to the outcome.
Definitely worth bringing up with the law society as someone has to hold them accountable!
Also the other family members are partly responsible too, allowing greed to get in the way of sound judgment. Did they consider the implications of what would happen if they couldn’t sell it for a higher price?
What happened to common sense? Clearly it doesn’t pay the bills.
Screwed by their Lawyer!
by Simon Zutshi
I still can’t believe it. I have been dealing with a motivated seller in London who is being repossessed on the advice of a lawyer acting for one of the family members and even worse this decision has been backed up by a Judge.
I was speaking at an event in London last week and at the end I was approached by a gentleman who for privacy we shall call Mark. Mark asked me if I could help because his mother’s property was due to be repossessed this week!
He asked me to come and look at the property to see if I could help them. It is a large four bed property in North London in need of some work but a fantastic location. Mark explained that his mother lives in the property but that he, his sister and his mother were all on the mortgage.
The loan was with a subprime lender who was charging them 10.5% per annum and they were finding it very hard to keep up the payments and so had decided to sell. Another brother and sister had been helping to pay this mortgage but had decided enough was enough and they had to sell
So the house was put on the market and as a sale had been agreed the lawyer representing Mark’s sister (let’s call them “Bungle & Scarper”) had suggested that the family members stop paying the mortgage and the arrears that build up could be paid off when the revenue comes in from the sale.
This is a risky strategy in the event that the sale could fall through, which surprise, surprise it did. We all know what happens if you do not pay your mortgage (or maybe we don’t all know) …eventually you will get repossessed. Mark had already been to court with his mother and the Judge advised that the property had to be sold.
Mark was a very motivated seller. He and his mother agreed that they would rather sell the house at a discount, to clear all the debt and walk out with £100k rather than get repossessed, have their credit records trashed and potentially not get much money after all the associated legal costs. Mark had an investor lined up ready to buy the property who also went to court with them to present the solution.
Unfortunately, Mark’s sister and the other brother and sister had a different view. On the advice of their lawyers, Bungle & Scarper, they thought the best solution would be good to get repossessed and then do a deal with the lenders solicitors to sell the property on the open market get the best possible price and then hopefully they would get more money from the sale, not to mention the trashed credit rating or maybe they are unaware of the full implications.
Incredibly the judge thought that the investors offer was too low (even though it would clear all the debt and give the family £100k plus), and agreed to give possession to the lenders solicitors. How can being reposed be the best solution for the property owners? Maybe the judge was thinking that they will get more money by selling the property on the open market. Well, whilst I agree they may receive a higher offer I wonder if the Judge has conserved all the associated costs. For a start an estate agent in London would want 2.5% of the sales price. I am sure the lenders lawyers and Bungle & Scarper will also have very high costs associated with their time involved in the sale, not to mention all the interest and penalties building up whilst the property is marketed and sold.
This cannot be right! Maybe I have a simplistic view of this. Maybe I have had a bias account of the facts from Mark but this does not seem right to me. Is this fair? What do you think?
I wonder if Bungle & Scarper were more concerned about the fees they can earn from the prolonged case rather than the best interests of their clients. It looks to me as if this lawyer has been giving financial advice to their clients. Interesting as I don’t think they can do that. I wonder what the law society would have to say about this?
The lessons I would like you to draw from this are as follows:
1. Most sellers do not understand the implication of getting repossessed. Often the bury their head in the sand and think everything will be better once the property is repossessed
2. You need to be aware the advice that sellers are given may not be the best course of action for them.
3. When you are dealing with sellers always put their interests first ahead of your own and try to come up with an ethical win win solution.
4. When there is a disagreement between family members the judge can decide the course of action he sees fit.
Feel free to post what you think about this case study.
Source: Simon Zutshi, Property Investors Network