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Jansen Walsh and Grace


 

 

Solicitors' certificates are being provided in an increasing variety of situations, from mortgages to guarantees.  Despite the prevalence of such forms, many borrowers still don't always understand their significance.


Common misconceptions borrowers have about certification include:

  • “Can you just sign this?”
  • “I just have to sign the loan documents in front of a solicitor
  • “This is like having my passport application witnessed.”

Some borrowers think that bank documents must be witnessed before a solicitor.  That is not correct.  If you sign a bank document, your signature on the loan document only has to be witnessed by a person above the age of 18 years.

When the lender tells you to take the documents to a solicitor, the lender's instructions usually require the borrower to get a solicitor to prepare a certificate.  The purpose of the certificate is to protect the lender, not the borrower.

Quite understandably, many borrowers take the view that preparing the certificate is one of those services, such as taking an affidavit, that solicitors are required to perform for free so as to help them get the loan.

Transfer of risk from lender to solicitor
In the context of mortgages and loans or guarantees, solicitors' certificates are the lender's means of transferring their risk to the the borrower's solicitor.


The solicitor is poised for liability if the guarantor or mortgagor can challenge the certificate.  It is simply a measure of protection for the lender.  In the event of a default, it ensures the solicitor who provided the certificate will be in the gun for the full amount of the loan.


His Honour Judge Anderson made it clear in XPAK Pty Ltd v Scibilia [2013] VCC 1260 that in agreeing to provide a certificate to your lender, the solicitor is liable to your lender.  Under our obligation to your lender, we must:

(1)    advise you of your obligations;

(2)    assess whether you understand our advice;

(3)    assess whether you have capacity;

(4)    assess your vulnerability if you are giving a guarantee;

(5)    verify your identity;

(6)    prepare the certificate for your lender;

(7)    provide you with a written letter advice;

(8)    keep a written record for the lender.

These are for your lender's benefit, not for your benefit.

Although the lender wants a certificate, it will not agree to pay for it.  Under the terms of the loan application, you obtain it and you pay for it, even though it is for the lender's benefit.

These are not remote risks for solicitors.  Solicitors have been sued under these certificates for the amount lent to the borrower, and the solicitor had to pay it.


For example, in XPAK Pty Ltd v Scibilia [2013] VCC 1260, a firm of solicitors was sued by the lender on one of these certificates.  His Honour Judge Anderson held that the firm of solicitors were liable to the lender because: "The procedures to be followed when a solicitor’s certificate is given are well known to solicitors and are also set out in the recommendations of the relevant statutory body published for the guidance of legal practitioners.  Proper identification of signatories is an important part of the processes necessary to protect lenders from the type of fraudulent activity which occurred in this case.   The certifying solicitor’s role is interposed at the stage of execution of loan documents to ensure that, so far as possible, the risk of fraud is minimised."  His Honour referred to "the high culpability attributed to a solicitor who expressly took upon himself the duty of taking reasonable steps to protect" the lender.


Given the burgeoning incidence of mortgage fraud, there are obvious risks associated with offering this service to people we do not know.


Some of our clients have successfully refused to get a certificate and still got the loan.