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Financial Inducements

2 April 2003

Roger Green investigates the dilemma faced by conveyancing attorneys when dealing with estate agents and mortgage originators in his article, Home (a)loan, featured in the April 2003 De Rebus. Paying commission to an agent for referring work is wrong for the simple reason that the agent does not have the power to "give" a conveyancing transaction to an attorney. The seller has this right and the power to nominate any conveyancing attorney s/he chooses. Some agents however insist on interfering with the attorney/client relationship, without disclosing the fact that they may enjoy a financial benefit.

Green mentions that the mortgage origination industry is also in a sorry state. Some conveyancers are becoming doubly indebted to estate agents who, in addition to introducing sellers to the conveyancer, also arrange the bond origination. The primary function of a mortgage originator is to compare rates between banks and to assist a homebuyer in obtaining the best rates. However, given the influence of the mortgage origination industry this fact has been overlooked. Mortgage originators are able to dictate which conveyancer, from its panel of conveyancers, should register documents for security on behalf of the bank. The mortgage originator thus succeeds in having two sources of income, the fee from the conveyancer and the commission from the bank.

The Law Societies object to this and other plans such as subscription agreements. Mortgage Origination panel attorneys are required to sign these subscription agreements whereby they are paid a fee for each mortgage bond instruction received and they undertake to contribute to website advertising. This service was not offered to non-panel attorneys - the irony of which was not lost on the Senior Counsel employed by the Kwazulu-Natal Law Society who concluded that such an arrangement was "an agreement for the sharing of conveyancing fees, which was simulated to have the appearance that it was one for the rendering of services at a remuneration."

The author goes on to discuss the problem of mortgage originators effectively soliciting work on behalf of its panel attorneys. Banks must clearly state that they will decide whom they instruct and will do so to avoid lingering suspicions. Green thinks that South Africa needs a code of conduct. In England, there is no tension between the Law Society and mortgage originators because a mortgage originator is just that - a mortgage originator. The article ends with a look at what sharing fees means given the possibility of multi disciplinary practices.

In conclusion, it is wrong for an estate agent or a mortgage originator to usurp from principals their right to nominate their own conveyancers. It is simply not in the interests of the public.

derebus.org.za website

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