More potential headaches for borrowers

[DaleGG]

Hi

Following on from a fascinating article given to me recently where the Law Society in WA has recommended that its members NOT sign declarations of legal advice for people borrowing money or acting as guarantors....

This article is in the current newsletter to accountants from the NTAA.



"Certificates in support of Client Loan Applications

The NTAA has recently obtained a legal opinion from Riordans Lawyers regarding the dangers faced by members signing certificates in support of client loan applications.

Editor: These certificates require the accountant to certify, with absolute certainty, the clients assets, income and even their ability to repay a loan! Get real!

Members are advised not to sign any certificate requested by a lender regarding a client’s loan. Members who do sign such a certificate risk exposing themselves to a potentially substantial liability (especially if the client defaults on the loan, and the lender comes looking for someone to blame).

It has also come to our attention that some bodies are asking accountants to certify that their client is a ‘sophisticated investor’ for the purposes of the Corporations Act. Even though that Act specifically allows for these certificates, at this stage we have the same concerns about these certificates, and advise members not to sign them if possible.

In the meantime, we will take this issue to the lenders and the Government, to see if we can ensure that accountants signing such certificates are not exposed to any liability."

 

[alexlee]

Dale, will this limit the use of low-doc and no-doc products, where income is just taken by the bank on the basis of the applicant's signature only anyway? Currently, do banks require solicitor / accountant declarations for such products?
Alex

 

[JamesGG]

Hiya,

Alex, these declarations for accountants and solicitors are not just for lo- / no-doc loans. My recent purchase on full-doc loan required these declarations from my accountant (wtf?! I am an accountant!) and my solicitor, even though I didn't actually want independant advice.

From what I can see, it's simply another way for the banks to cover their own ****, which could potentially create problems for those signing away on these declarations...

Cheers

James.

 

[alexlee]

I see. Just another way for banks to tighten lending criteria. Is this currently confined to one state or market, or one particular bank?
Alex

 

[Mry]

I see. Just another way for banks to tighten lending criteria.

Actually, its so they can sue accountants.

 

[alexlee]

Actually, its so they can sue accountants.

Yes, but presumably because they believe there is an increased change of people defaulting on mortgages. If the banks didn't see an increased potential default rate, why limit their business this way? Some, if not most accountants won't sign off on this (I wouldn't: from everything the Institute is sending me, professional indemnity insurance is expensive).
Alex

 

[Ricardo29]

more rubbish dreamt up by some imbecile.

nothing to do with default rates and the like...just a moronic requirement without even realising they are harming their own business.

 

[Kennethkohsg]

Dear Dale,

1. Is this then "indicative" of the banks' unpsoken intentions to "tighten" on their lending activities in the near future?

2. Is this a one-off measure or can we expect more things to come soon?

3. Is this a "on-going negotiation" between the various professions concerned or is the banks passing the bucks over to the clients' solicotors and accountants?

4. Looking forward to your hearing and learning further from your professional/informed views, please.

5. Thank you.

Cheers,
Kenneth KOH

 

[Rolf Latham]

Hiya

Generally not required for most low and no doc applns.

Recently I have been getting neg vibes from solis as well when they are asked to provide legal advice.

Id suggest in truth, that a lender would have no reasonable recourse to an accountant in most circumstances..........................and I believe the reason is this.

The actual and documented ability and capacity to repay is ONE thing. The act of actually doing so is something all together else.

ta
rolf

 

[Ricardo29]

correct rolf...
by viewing docs and making a fair and reasonable assessment of a financial position, based on factual evidence......it can not reasonably then be assumed that a beancounter signing a document has contributed to the clients non-ability to repay a loan.
the bank can not shift their debt recovery, or poor debt management, poor financing practices to someone else. its ridiculous, and extremely arrogant to think they could. typical though. on the one hand they throw money at anyone with no concern increased credit card limits, then on the other come up with something as ridiculous as this.

 

[see_change]

It all seems to be an all pervasive attempt by people to cover their a...s.

I went to the lauch of a new " health-e-link" initiative being lauched in Western Sydney which enables ( with consent of the patient ) GP's to assess basic info from hospitals and Vice verse . A worth while project . Skimming through the details of the contract ( which I tend to do ) I came across a clause which had me ( personally ) indemnifying the body organising this ( a government body ) against any litigation taken against them in case I , or any of my staff incorrectly entered any info.

I raised this at the launch meeting and was reasurred that they'd never actually use it , and that it was a standard clause. Sadly only a handfull of GP's have signed up.

A worthwhile project potentially undermined by some legal twits requirement for standard clauses.

See Change

 

[Waverlybay]

Has anyone actually seen these "certificates" requesting a lawyer/accountant/financial adviser certify that their client's financial position is true and fair or that their client has the ability to repay the loan?

I find it utterly bewildering that any bank would make such a request. I have loans with all the majors plus non bank lenders and i have never seen a request of this kind - even in the last 12 - 24 months. What are other people's experiences? My hunch would be such a request would be on an extremely exceptional basis.

2 years ago... macquarie (..or more accurately ..Perpetual trustees) requested i get the following sign off from my solicitor:

"I CERTIFY that i gave financial advice in respect of the financial risks the borrowers are assuming by signing the documents. I discussed with the borrowers:
a) the viability of the transaction which the borrower was undertaking
b) the borrowers ability to make the required payments to the lender
c) the borrowers ability to make payment to the lender"

Note the wording here- this is not asking the solicitor to "guarantee" my financials or my ability to pay. It simply asks the solicitor to certify that he has "explained" to me the financial risks... associated with the loan.

Perhaps this the sort of certificate the NTAA is speaking out against?

I found even this request totally draconian. What can u do when the bank throws one of these declarations in the loan doc package...3 days before settlement? No choice but to get my solicitor sign.. fortunately he agreed..

WB

 

[coastymike]

Ive been requested to sign many of these certificates and have refused in every single case. No way am I going to sign a certificate that says that my clients will meet their obligations. I have informed previous lenders that their credit risk department should be assessing the application and making their own decision. I am not putting myself in a legal predicament. Some clients don't understand. Most do when you tell them that if the company was wound up tomorrow or they missed a payment then I could be liable. I agree with Dale...Get real !!! Only a fool would sign those things.

 

[Rolf Schaefer]

It is mostly Macquarie and Interstar (through Perpetual Trustees) that are requiring certificates of independent legal and financial advise when purchasing a property with Guarantors ( as is usually the case within a HDT).

I will contact Macquarie on Monday and discuss this issue with them and advise of the outcome.

Have a great weekend.

 

[DaleGG]

Hello Kenneth

The main reason the banks want this sort of certificate is to protect their rights and interests if something was to go wrong.

In the old days, the banks would accept a guarantee from a reckless son's elderly mother in the knowledge that if the reckless son was to go bankrupt or refuse to pay then they could at least get the elderly mother's home.

Of course, quite a few old dears signed documents without knowing what they were signing or what the implications of these documents might mean to them. After all, their son was always a good boy and wouldn't do any wrong....would he?

So, when the banks had to foreclose on mum she would be distraught at losing her home of many, many years and plead ignorance.

So, by asking accountants and solicitors to sign these douments the banks can now stand up in court and say that to the judge that yes, little old Mrs mum did understand what she signed and we have an accountant and solicitors signatures confirming that they both explained this to her.....

Have fun

Dale

Dear Dale,

1. Is this then "indicative" of the banks' unpsoken intentions to "tighten" on their lending activities in the near future?

2. Is this a one-off measure or can we expect more things to come soon?

3. Is this a "on-going negotiation" between the various professions concerned or is the banks passing the bucks over to the clients' solicotors and accountants?

4. Looking forward to your hearing and learning further from your professional/informed views, please.

5. Thank you.

Cheers,
Kenneth KOH

 

[sailor]

It's not as though they're asking accountants and lawyers to go guarantor for the loan. Is it? I understood that it was just stating that they'd discussed all the issues with their clients. and certifying ability to pay. That doesn't necessarily imply that the client actually will pay, does it?

cheers
Sharon

 

[coastymike]

Sailor,

What if you sign the document certifying your client's ability to make repayments. The industry they are in then experiences a sudden downturn and two years later the client goes into bankruptcy. Could the lender go after the accountant ? Well in my opinion it is a possibility and why I don't sign such things. I cannot predict the economy, business cycles, consumer sentiment, etc. and so will not put my name saying that my client has the ability to repay. In fact they may have hidden things from me such as going guarantor on other loans that I was unaware of at the time of signing and therefore I was signing something that I thought was accurate but yet turned out to be inaccurate. My view is that the lender has a credit risk department for a reason. To assess credit risk. I'm not acting as the lender's credit department and nor will I.

 

[sailor]

Mike...that would be terrible. So under what logic are they (govt) making such a law?

cheers
Sharon

 

[alexlee]

The govt isn't involved with this. It seems to be a bank policy. Since no accountant I know would sign this, it'll give banks another reason to refuse loans.

Coastymike, imagine what it'll do to your PI insurance if you signed these things!

 

[Bargain Hunter]

We have had to have these types of documents signed for the last two loans. I believe there was a form that stated that we have chosen not to seek financial advice as a waiver for the bank.

The other document was for the solicitor, this could have got messy because we were purchasing via a trust. In this case there is independent legal advice for myself, my partner and then the trustee even though we are in essence one in the same.

The solicitor stated that we should really have advice from multiple solicitors for each party but in the end signed to say they had provided the advice.

Again the solicitor was not pleased with the arrangement but agreed. There will undoubtly be a number of solicitors and accountants who won't sign these documents, especially if a case is brought against them by the bank or mortgagor.

I don't believe the banks are looking at hitting up the accountants and solicitors, they simply don't want their clients going to court arguing that they didn't know the implications of signing the documents.

By having a document that says "yes we got legal advice and we know we can lose the farm" then the case should be thrown straight out of court and the farm can be taken. It is unlikely that the mortgagor themselves could afford to take the solicitor or accountant to court.

Perhaps that's part of the reason for the increase in mortgagee sales, no escape through ignorance.

Regards

Andrew