EDIT: In this post, I should have referred to form RX4 – an application by the lender or its conveyancer to withdraw a restriction. Form RX3 is used by someone else to cancel the restriction. Apologies for my error and any confusion I caused. On to the post itself:
“RX3” refers to the Land Registry form (a form RX3) for applying to withdraw a restriction that has been registered against a property, and sellers’ conveyancers are causing a big headache over it. Let me explain.
Restrictions can be registered against properties for a number of different reasons – for instance, to protect the interests of beneficiaries under a trust affecting the property. One that is routinely used by some mortgage lenders is a restriction preventing any dealings with the property without that lender’s consent; the idea is to prevent the borrower who owns the property creating a second mortgage (or perhaps a lease) over it without the lender’s approval.
Because those “no disposition” restrictions are there to protect that lender’s interests, they are automatically removed when the mortgage is discharged, which should be within a few days of the mortgage debt being repaid on the sale of the property. However, large institutions being what they are, some lenders can sometimes be very slow in discharging their mortgages – in which case, the restriction remains in place, preventing the buyer registering their purchase and the buyer’s own lender registering its own mortgage.
This is, of course, bad news for the buyer’s and new lender’s conveyancer: not only does it cause a lot of extra, unpaid work but, if the delay continues long enough, it can result in the conveyancer being suspended from the new lender’s approved panel, or being struck off it altogether for failing (through no fault of the conveyancer’s) to register the new lender’s mortgage within the timescale specified by the lender.
There is a simple solution: the seller’s solicitor, who will routinely have acted for the seller’s lender in paying the mortgage money to that lender out of the sale money, could sign a Land Registry form RX3 on behalf of the old lender to remove the restriction. That would allow the buyer’s purchase and mortgage to be registered, protecting their and the new lender’s interests, even if the seller’s old mortgage is not discharged for some time and remains on the register until then.
Unfortunately, too many conveyancers refuse to do this, either saying it is unnecessary, because the restriction is automatically removed on the discharge of the mortgage (missing the point that it is the delay in discharging the mortgage that causes the problem) or saying they do not have the lender’s authority to sign the form (missing the point that they do, as the lender has authorised them to act as the lender’s agent in connection with the mortgage redemption).
Does anyone disagree with me? If so, where am I wrong? If you agree with me, do you have any ideas as to how to convince other lawyers?
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In addition to the comments below, I have received the following comments via other means:
1. The solicitors who refused to provide the RX3 were quite correct. If they signed the RX3 they would be acting without instructions, whilst I may act for a lender in a redemption I do not have the authority to remove their restriction unless they give me instructions to do so which is highly unlikely.
The core problem is that there are no time limits enforced by the CML in relation to the discharge of mortgages. If the lenders had to discharge their mortgages within say 10 working days and provide notice of the same within the timescale then this issue wouldn’t arise.
It would be nice if the Land Registry could send an email notice to the firm with a priority search in place to notify them of an electronic discharge. However again I feel this is pushing the responsibility away from the lender.
2. That’s well beyond the solicitor’s retainer which is set out in the Lenders Handbook (around condition 17 from memory) and does not extend to formally discharging. There is a clear conflict of interest in actively discharging the mortgage simply to protect the new mortgagee.
3. I agree that this is a problem and that what has been suggested is a solution – but why should we (on both sides of the transaction) be put to this further cost and trouble. Surely it’s better to continue the pressure on Lenders to discharge more quickly and bring to their notice the problems (and cost) caused by their failure to do so.
4. I agree this situation is unsatisfactory. I shall raise this matter with Law Society. One problem that the note below does not address is that many lenders now do not instruct the Sellers solicitors to act for them on the redemption. It just sort of happens. It’s a bit of a grey area that the Conveyancing and Land Law Committee are currently grappling with.
I would hope to respond further in due course.
5. Not sure we have authority automatically as seller’s conveyancer from the lender to do this and we would need to request this on getting deeds (assuming there are any) and all lenders will have a different view.
What if on the odd occasion the wrong money has been requested from the lender, still a charge but no restriction.
Suggest as a group we complain to the FSA and then see us all off the panels!
A solution from a lecture I attended, given the case of Swift 1st Ltd. v Colin 2012 WLR 186 a notice was registered, because the charge could not be because of the restriction and the notice was held to protect the lender.
I understand large conveyancing organisations are adopting this procedure regularly. Time for the LR to rethink its early completion policy.
6. This is a response I have received from TLS:
“Thank you for this.
As discussed at the last C&LLC we have created a work around and the situation is not satisfactory. The position arose from dematerialisation – instructions were given as a matter of course with the deeds. The Law Society expressed the view forcibly that dematerialisation should not take place until the whole conveyancing system was completely electronic.
As you say seller’s solicitors often do not have specific instructions from the seller’s lenders – and if they did the instructions would no doubt only be to deal with the payment of redemption monies and not to release protections on the register that they have put in place. This could not be done without specific instructions to this effect in my view. Suggesting that sols do this in my view creates more work for the solicitors on both sides without addressing the root cause which is the delay on the part of the lenders to discharge effectively and promptly. We have had some discussions around this topic recently with lenders and others.
In terms of the delays in registration – the LR policy of ‘early completion’ has not helped. In terms of being removed from panels – if solicitors provide full and timely information to the new lenders about the reasons for the delay and preferably mentioning the name of the delaying lender they should not be removed from panels – this should only occur if solicitors fail to advise lenders of the position and fail to respond to communications from the lenders asking for information about the status of the registration.”
This is a work in progress within the C&LL Committee, I shall update further in due course, but it may not be till the autumn.
7. You need to refer to Land Registry Practice Guide 19 – Notices, Restrictions and protecting third party interests (http://property.practicallaw.com/9-106-6726) which provides details on how to remove a restriction from the title.
If you read Form RX3 you will see that it provides notes on where the form is to be completed by the conveyancer acting for the client. So the answer is yes, the conveyancer may complete the form.
One rather assumes that if the conveyancer is acting on the transaction that he will have obtained the authority of the client to act in all matters relating to that transaction. That is standard practice and goes for all documentation signed by the conveyancer on behalf of the client. In practice I have never encountered a problem with submitting a form RX3 on behalf of a client having obtained their authority at the start of the transaction to complete all documentation pertaining to that transaction.
8. The point is to establish the extent of the instructions when dealing with a mortgage redemption and if unclear seeking them in writing from the lender.
I am not sure how many lenders would actually respond – either at all or promptly.
The CML handbook may also contain something on this point.
9. Isn’t this a Law Society/CML issue on behalf of all lenders to authorise any solicitors acting on the redemption to sign the RX3 when he sends the redemption monies?
Otherwise you would need to check the exact terms of your authorisation when acting for each lender as to exactly what they have authorised you to do. This isn’t nebulous there must be a written agreement between solicitor and lender when acting Maybe even in the terms of panel appointment or the Code for Completion by Post.
10. I can certainly see the point that is being made, but disagree with much of the rest. We would be better concentrating on getting lender’s to discharge mortgages more quickly – this is the real issue.
If we are instructed in connection with the discharge of the mortgage, I don’t agree that we have authority to sign the RX3 – not the same thing, and removing it allows anything to be registered. Wouldn’t want to risk it. What if there was a problem with the mortgage being discharged and we had already agreed to remove the restriction?
And yes, if the restriction is removed, the buyer can get registered, but as the existing charge has not been discharged, the buyer’s lender ends up with a second charge – but that is still in breach of the lender’s instructions that they should have a first charge.
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I will wade through them and respond when I get time (probably at the weekend), but clearly there is a divergence of opinion, and I seem to be at one of the extremes of the range!
I guess that lawyers are concerned about what authority they have when dealing with the redemption of a mortgage to take this positive step. Do their lender instructions entitle them to do so? Perhaps there should be some guidance – note of best practice – issued by the Law Society on the issue. Perhaps it should be included with the CQS provisions.
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Thanks for these comments, and the many off-line comments I have received.
In the last couple of weeks, I have found fewers selers’ solicitors objecting to giving an assurance that they will sign a form RX4 if there is a delay in the lender discharging their mortgage. I have also found more purchasers’ conveyancers asking me, when acting for a seller, to agree to sign a form RX4 – which, of course, I do: I can see no ground on which a dilatory lender can object to the removal of a redundant restriction in order to minimise the problems caused by their own delay.
It seems to me that any seller’s conveyancer in these circumstances should be happy to do the same. Where they prove reluctant, an alternative might be to ask them to expand on their undertaking to discharge the mortgage, by saying that they have paid to the lender the amount required to redeem their loan – this could then be used as evidence to support an application in form RX3 by the buyer’s conveyancer for the restriction to be removed.
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I’m not sure I agree…accepting the premise that when redeeming a mortgage we are acting as the lenders agent to redeem the mortgage doesn’t necessarily confer upon us instructions from the lender to remove their restriction that is registered against the title.
I would be reluctant to sign an RX3 on behalf of a lender without an express instruction that I am authorised to do so. Does acting as the “agent” of the lender confer the same level of authority as acting as a lender’s “conveyancer” which is the term referred to in the RX3? As an agent we are instructed to receive the redemption monies and forward to the lender, I would argue that is the extent of our authority in the matter and to take further steps to remove the lender’s restriction would be to step outside the scope of acting as “agent”?
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I must admit that as a seller’s solicitor I would have reservations about signing an RX3 in these circumstances without my lender client’s express instruction to do so. From the lender’s point of view they would not expect the Restriction to be cancelled until such time as the charge itself is cancelled. In any event the removal of the Restriction is only part of the required process. While the old lender’s legal charge remains on the register, the seller’s solicitor has not completed their obligation to the buyer’s solicitor, and the buyer’s solicitor has not fulfiled their own obligations to their buyer and lender client. The real problem to be tackled is the sub-standard service level of some lenders in cancelling their charge promptly once the loan has been repaid. To some extent the advances in electronic discharge processes may help, but what is really needed is some commitment by CML to an agreed timescale. It is after all very often the new lender who is applying the pressure, as it is no use to them to have their new mortgage secured only as a second charge behind the (redundant) old charge. Ironically we have sometimes found ourselves chasing the old lender on behalf of the same bank as the new lender who requires registration of their first charge.
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