The legal complexities of equity release

For those advisers who are new to the equity release market, the potential legal complexities of individual cases can be mind-boggling.

Chris Prior
7th May 2015
chris prior bridegwater equity release

Even if you’re a mortgage adviser who believes they have seen it all, moving into the equity release space can bring about a range of legal issues that you would never have thought possible. If you are newly-qualified or considering a move into the provision of equity release, I would certainly recommend you take time to chat with an equity release specialist solicitor as it would be an enlightening conversation on just what can crop up when attempting to take a case through to completion.

When we hold our ’round the table’ events often some of the most interesting discussions have a legal focus to them which is why we tend to have a equity release specialist solicitor attend. The issue for advisers is that each case tends to be unique and potential roadblocks can crop up which, with some legal information and insight, could potentially mean a smoother path is possible for all concerned. If any client doubts the importance of specialist legal support then they should come to a roundtable because it will become crystal clear to them how it can make all the difference.

One area which was recently discussed at our Liverpool event was with regards to Legal Power of Attorney and the legal complexities that can arise when it is in relation to those who have already taken out an equity release product and want to drawdown further, and/or those who are attorneys wanting to take out an equity release on behalf of the ‘donor’. I’m sure that you can already see how there might be intricacies in such cases and this is obviously a sensitive area which will need to be handled right.

Clearly with an LPA there are a number of risks and considerations for all parties involved, particularly the lender. The issue of an LPA was specifically raised with relation to drawdown products – the point being made that should the client have such a product but, in between wanting to drawdown again, lose the ability to make such decisions, to not have an LPA in place effectively renders the product unworkable.

The argument was put that advisers need to be particularly careful in selling drawdown products because, at a later date, the client may not be able to access their funds since, for example, they might have dementia and/or haven’t appointed any attorney(s). The point was even made that an LPA should perhaps be mandatory for any client who purchases a drawdown product, and clearly there would be an important role for advisers to play here. Not least in protecting themselves.

Other LPA-related issues centre on the attorney themselves taking further drawdowns or indeed wanting to start an equity release product on behalf of the ‘donor’. Our solicitors in Liverpool, Goldsmith Williams, pointed out that wherever there is an attorney working to get a drawdown they would secure a letter from the donor’s GP to confirm their capacity. That is, their capacity to understand an equity release contract, and their capacity to understand financial services. The point was also raised that some individuals may not have the capacity to set up an LPA in the first place. Essentially, in these circumstances the solicitors are going to want to know – whether drawdown or new sale – that the release of the equity/generation of cash was for the benefit of the client/donor and not for the benefit of the attorney themselves.

As you can see, just on one legal issue like LPA we have a whole gamut of potential complications and implications for everyone involved. The adviser needs to ensure from the start that they are in possession of all the facts and that, crucially, they are able to prove them. The solicitor too is going to want to avail themselves of all means possible in order to ensure the credibility of everyone involved and that an equity release product or drawdown is being sought for the right reasons. Clear communication and interaction between all parties is essential but let’s not be surprised if these sorts of cases need some time to unravel and finally complete. Such is the way of the law, however in these situations it is vitally important to get it right or the consequences could be severe.

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