Gone (sort of) but not forgotten: Covid's impact on short term lending

All stakeholders were forced to adapt quickly once Covid started having a real impact at the beginning of the pandemic.

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Harry Peradigou | Partner at Brightstone Law
10th May 2022
Harry Peradigou Brightstone Law

That lenders were willing to adapt and were fast to do so, should be no surprise. We pride ourselves on flexibility and speed in this industry. But has the landscape changed for good and forever?

Some of the issues that arose and had to be dealt with are below.

1. Valuations

Physical inspections became impossible as access to properties was not permitted even if a borrower or seller were happy to grant it.  Some lenders moved to AVMs (automated valuation model) out of necessity.  As a firm engaged and invested in both originations and recovery, concerns arise as to reliability in the AVM model itself.  An AVM will not tell me if the borrower’s mother lives at the property with them. Nor will it tell me that a property has been converted for use as an eight-bedroom HMO, for example, or that the access road is not likely a public highway.

Some lenders today continue along the AVM path, access for inspection no longer being a practical issue. I understand the commercial rationale for doing so, but I also understand from my colleagues in recovery, that the use of AVMs can prove rather limiting in terms of recovery avenue if issues on value( all other issues apart)  later arise.  

2. Witnessing of legal documents

During Covid, this involved some outside of the box thinking.  Mercury execution aside, a mortgage deed, as opposed to a facility,  still requires the witness to be physically present, despite some initial misinformed excitement around the benefits of Mercury .  Most lenders for whom we act agreed that the borrowers could sign the loan documents in the presence of an independent third-party witness whilst their lawyer validated over video call.   We experienced some unusual executions (better than Netfilx on occasion!), including solicitors overseeing legal charges being signed in front rooms, and witnessed over zoom, neighbours witnessing through a window, or over the garden fence. 

Advice over video call has largely remained in place with most of our lender clients as it does work. The advice is the crucial element here, as is a suitable written certificate of advice being received; less so the method of delivering advice. Innovative processes can save the borrower having to travel two hours to get to a  lawyer’s office. There are still many firms that are not fully open to the public or have multiple members of staff still working from home.

3. Land Registry

I could probably write an entire article on my frustrations with Land Registry.  Covid led to significant delays with registrations and those delays have not really improved.  Most of my clients are short term lenders, usually with loan terms of no more than 12 months.  We are struggling to obtain updated registers; some taking twelve months to complete, especially if it is there is an element of complication.  Even simple applications are taking three to four months for Land Registry to complete.

All lawyers have had to adapt to this problem, and some have accepted undertakings to get subsequent deals completed where the registration for the previous transaction is still being held up by Land Registry.  

Overall, I am in utter disbelief at the continuous delays when dealing with Land Registry and wonder how long it will take for normal service to be resumed, but we continue to try to find pragmatic ways around the issue whilst working closely with clients and borrowers’ lawyers.

The important element here is to have control. At Brightstone Law, crucially we lodge and control the application. In so doing, we can monitor and review. This way we know whether an excessive delay is simply Land Registry inefficiency, rather than a result of something more sinister

4. Working from home

During the height of lockdown restrictions, most staff were working from home.  This led to many lenders and lawyers adopting a hybrid approach, even after lockdown restrictions were lifted.

A hybrid approach does work but it is certainly not an answer to all prayers.  We prefer a significant office presence, working alongside our remote practitioners. Collaborative teamwork is often required and works best when all are on site. We do have most our staff back in the office full-time, accommodating remote working wherever possible.

As lawyers, we certainly need staff physically present when dealing with lenders. I can’t confirm I am holding an original executed legal charge, for example, if someone in the office hasn’t received it.

5. Title indemnity insurance/search indemnity insurance

Due to the delays with, mainly local authority searches, many lenders started relying more heavily on title insurance, if a lender has such blanket title insurance in place or search indemnity insurance, if not.

This helped a great deal when the usual (approximate) four-week turnround for a local authority search result increased to eight and more  during the height of Covid restrictions. It was invaluable in getting matters completed and most lenders were sensible in using this for appropriate loans with lower risk, or those where the character of the security permits.

6. Video calls

Most seemed to embrace video calls and utilise them to keep in touch with clients tTeams meetings became common place and even, on occasion, discuss matters with other lawyers.  To a certain extent, especially with many people still working from home, this remains still a valuable mode of communication. It’s a great innovation in my opinion. Names become faces, and faces become personalities, over Zoom or Microsoft Teams; far more so than tradional calls and sharp emails. Video calls have helped to establish better rapport with clients and reinforce relationships.

Overall, I believe that the challenges Covid presented for us as lawyers acting for lenders meant were met. We had to adapt just as our lender clients did  . In my experience most businesses handled it well and as far as possible, thankfully, we are now   close to “business as usual” or should I say “improved business as usual”?

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