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Newsletter 2 - March 2006 - E-conveyancing: The Practical Issues.

E-conveyancing will be with us shortly but just how will it impact on lawyers and their clients?

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Where it all started

The past couple of decades has seen enormous leaps in the development of computer technology and software, but nowhere has that revolution had more impact than the invention of the internet. What started out as a means by which government agencies and computer geeks could communicate electronically has quickly developed into an electronic highway allowing individuals throughout the world to instantly communicate and search for an almost infinite amount of information, services and goods. The development of high-speed networks and the mass availability of broadband has opened the internet to a brand new class of entrepreneurs who have attracted an incredible number of personal and business users. There are now millions of individuals across the globe who use the internet for free phone calls, forcing many traditional telephone network companies to grudgingly accept that the writing is on the wall for expensive call charging. Fast high definition video conferencing is threatening the travel industry as businessmen realise that they can use the internet to conduct instant meetings without the need to hop on a plane. Online retailing is having a dramatic effect on high street stores as shoppers discover the ease of buying goods over the internet without having to step outside their home. And now this technological revolution is coming to the conveyancing profession. Just how will it affect conveyancers and their daily routines; are conveyancers going to have to change their whole way of working and what future - if any- do they have?

What is e-conveyancing?

Mainly due to the increased speed and reliability of broadband, the internet has developed into more than just a search engine and online retailing environment. It is now possible to run a sophisticated software program online in real time and this is what the Land Registry is hoping to achieve with its e-conveyancing service. Conveyancers using the system will discover that the draft contract and transfer that they assemble online will be instantly and automatically checked and validated against the Register so that no errors can occur. Based on the current Land Registry plans a conveyancer using the system can expect to see the following:

Canada and New Zealand have utilised e-conveyancing for a little while but their systems are not as sophisticated as that planned by the Land Registry. There will be a few more bells and whistles and changes as the system evolves. A messaging system and an online accounting module is planned that will provide a completion statement setting out what funds are due on completion.

Ron Kellermann

CEO
Firsthips Ltd.

Who will it benefit?

There is great anticipation in Government circles and the property industry that e-conveyancing will fundamentally change the process of house buying and selling, and by forcing conveyancers to use an electronic system all of the delays and problems will disappear. Some ill-informed commentators have even gone as far to suggest that e-conveyancing will make HIPS redundant. A recent press release by the Council for Mortgage Lenders suggests that "e-conveyancing will have a positive impact on the home buying and selling process, increasing its speed and efficiency". There has always been a widespread belief that the underlying cause of delay in any property transaction lies within the conveyancing process, and it probably seems logical for outside commentators to conclude that any system that will force conveyancers to use modern technology will speed up the process and ultimately benefit their clients. But is this just wishful thinking? For an answer we need to look at the system in more detail and establish just what benefits are available and who will actually gain from them.

Probably the greatest initial beneficiary of e-conveyancing will be the Land Registry. The process of paper registration is time consuming and the apparent inability of most conveyancers to get their applications right means that a vast amount of Land Registry time is wasted raising requisitions and chasing applications. Because the online process will automatically check and verify the data, there will be no excuse for errors. In fact the system is likely to be designed in such a way that each stage of the process will be simultaneously checked, preventing the application from moving forward to completion until everything is spot on. Assuming the Land Registry can get the software right, then almost all of the process leading to the final registration of the transfer will be handled automatically online by the software with the conveyancers undertaking all the work. This is the ultimate dream for all internet businesses. If you can design your software in such a way that the customer does all the hard work for you, then - apart from the occasional tweak and routine maintenance - you can sit back and enjoy the profits. As more and more Land Registry applications are being converted to be handled online, it seems that the day is not far away when the human element will largely disappear and practitioners will find that their main (and possibly only) method of communication and interaction will be at the end of a computer screen. As an aside, it will be interesting to see whether this will result in large scale redundancies at the Land Registry as the computer interface takes over from the human element and everything is handled online automatically.

Conveyancers will gain considerable benefits from e-conveyancing although there will inevitably be a painful process for practitioners as the systems are introduced. The ability to produce a contract and transfer online from existing data will help prevent errors, and the simultaneous registration with completion will avoid the worrying period of post completion registration while the priority clock is ticking away. Quite how mortgage lenders will be forced to simultaneously electronically remove their registered charge on the day of completion is a bit difficult to imagine given the present shabby and unreliable method of producing mortgage discharges and electronic notification, but then the Land Registry has the ultimate weapon of statutory regulation that can presumably force them into line…

Will it speed things up?

If everything goes to plan the Land Registry will benefit greatly and conveyancers will find that part of the conveyancing process is semi automated, and certain procedural steps are simplified. But will this make any difference to the speed of the process of selling and buying property?

The first thing you realise when you look at the e-conveyancing plan is that it only deals with a very limited aspect of the work that a conveyancer undertakes. The preparation of a draft contract and transfer is something that is generally handled automatically by an in-house conveyancing program, or a simple screen based form filling system for the less technically advanced. Either way, the preparation of the draft contract and transfer is a simple procedure for a conveyancer, and not one that gives rise to any delay in the process once that particular stage is reached. The ability to produce an online contract and transfer is certainly useful but in the scheme of things will it really simplify and speed up the process?

The other thing that strikes you is that the main thrust of e-conveyancing is aimed at the final stages of the conveyancing process, concentrating mainly on the process between contract and completion, a period that is generally insignificant to most clients (particularly as the current average seems to be around five working days) who may have waited many frustrating months to reach the ultimate and satisfying stage of exchange of contracts. Online registration with no priority gap problems, automatic SDLT and Land Registry fee payments and so on may be handy for a conveyancer but they have no real significance to the client.

The Matrix

One of the most revolutionary aspects of e-conveyancing is the introduction of the Chain Matrix, an online graphical interface that will depict each of the parties in the chain and the stage that they have reached. It is likely that this will be a compulsory aspect of the process and the Land Registry hope that case management systems will be adopted to automatically update the Matrix as the transaction develops. Quite how they will deal with conveyancers who don’t use this type of software and fail to update the system seems to be undecided at present.

It is puzzling to view the current Matrix plan with its six separate stages to exchange, four of which concentrate on events such as searches and enquiries being raised and received. Given that these items will be a compulsory under the HIP regulations and available before the property is marketed it seems likely that the Land Registry may have to revise the layout somewhat. If the objective of the HIP is fully achieved, then the only significant outstanding item after the issue of a contract will be its approval and any required mortgage offer, leaving the Matrix to offer little in the way of detailed information of any value. There is one proposed Matrix entry that indicates when the completion funds have been ordered (and received) after exchange. Quite why this is relevant to other parties in the transaction is puzzling, unless it is designed to provide confidence that the other side have woken up to the fact that they ought to submit their report on title to the mortgage lender in good time. The development of the Matrix is based on the somewhat naive assumption that all the parties in a chain are open and honest and want to proceed at the same pace. In reality that isn’t always the case. Not everyone wants to move ahead at the same speed or be frank about their circumstances and financial arrangements. Quite apart from this, the information in the Matrix won’t convey the reasons for any delay so whilst you may be aware that one of the parties is awaiting a mortgage offer, you won’t know what stage the application has reached. The initial plan for the Matrix has already been modified and the Land Registry will no doubt produce several more versions before the software is released.

Over the past few years a considerable degree of importance has been attributed to online tracking systems that allow agents and clients to see that stage that matters have reached. Conveyancing marketing companies have used these as a major feature in selling conveyancing services through their panel of conveyancers but in the author’s experience of using such a system with one of the UK’s largest conveyancing marketing companies, it seems that the vast majority of clients and agents prefer to pick up the phone and hear it from the horses mouth rather than go online and discover the transaction has reached a stage that they don’t even understand.

The Matrix is an ambitious development and many conveyancers will view it with considerable scepticism, although there will be a real benefit in the final stage where an online review will reveal the parties who are ready to proceed by signalling a green light and – to be fair – it has to be a great improvement on the present system of chinese whispers between clients and estate agents. Unfortunately, it has the failing of most computer systems: the human interface that it has to rely on for the information to be correct and up-to-date. Woe betide that firm of conveyancers who can't get beyond the red light when everyone else is at green – their phone will be ringing off the hook with angry agents and clients on their back.

Electronic signatures and fund transfer

For e-conveyancing to work effectively there is an absolute necessity to dispense with paper based documents with signatures, so in their place the Land Registry will develop electronic signatures. This is likely to be the most technically difficult aspect of the software process as security will be of paramount importance. From a conveyancers point of view it poses a major headache, as the conveyancer will effectively be acting as agent for his client and will need to develop a sophisticated instruction process that is likely to remain paper based. In reality this will probably mean the client signing a file copy of the contract and transfer for the conveyancers benefit, so nothing much will be gained in terms of speed and efficiency from the conveyancer’s perspective. This is an interesting example of where the Land Registry will gain at the expense of conveyancers, who will have to change their systems significantly and assume a much greater risk to cope with a whole new way of doing things.

The Land Registry plan to introduce the electronic transmission of funds through a single source on completion is extremely ambitious and open to much criticism, not the least from the banks that stand to be abandoned in the process. The plan – which is currently sitting on the back burner following a recent consultation exercise - is that the existing CHAPS transfer method will be abandoned and in its place all financial obligations including payments between the parties will go through a dedicated Land Registry Electronic Funds Transfer service. From the Land Registry's viewpoint, this will ensure that the correct Land Registry fee is paid which will contrast with the present high incidence of errors. Delays in the transfer of funds is a nightmare for all conveyancers but the Land Registry may not have taken on board that one of the major cause of problems is the late release of funds by mortgage lenders; the reason why so many conveyancers order them for the day before completion. It would be wishful thinking for conveyancers to imagine a day when mortgage lenders were compelled to transfer funds to arrive at a set time or suffer a financial penalty in default. Perhaps in future when your client is screaming at you down the phone for the keys to be released, you can give him the Land Registry’s telephone number.

The future for conveyancers

The term e-conveyancing may strike fear in the hearts of many conveyancers but in reality there is nothing much to worry about. You will certainly need a computer with a fast internet connection but there appears to be no need to run any sophisticated software or case management systems. In fact there will be a level playing field for all conveyancers, so no one firm is likely to be able to claim any major advantage over the other, regardless of size. The issue of electronic signature keys to conveyancers may even have the effect of enhancing their status and profile in the property community.

Electronic conveyancing is inevitable in the same way as the introduction of other electronic services such as online banking and tax returns. The Land Registry system is ambitious and won’t be with us in all its glory for a few years yet and may go through some significant changes in the process, but there is no stopping it now. The concept of a purely electronic conveyancing system is not really feasible from a conveyancers viewpoint as there will continue to be a requirement to keep a paper based system in the office, and there will be few conveyancers who are brave enough to dispense with their paper files. Online programs - or hosted systems as they are often referred to - are the future of the internet, and the Land Registry system is the first step in that process for conveyancers. Ultimately all aspects of the conveyancing transaction including the exchange of correspondence and documents with clients and other parties will take place online, and when that happens the process will certainly start to move at a much faster rate. Systems such as that being developed by Firsthips will take over the existing method of exchanging letters and documents by post or DX whilst simultaneously providing a platform for the HIP and an electronic interchange with the Land Registry.

A spokesman for the Land Registry has recently predicted that the new system will reduce delay in the whole property-buying process and lessen the anxiety that clients feel when they do not know what is happening in other parts of the chain. Despite all the hype and promises of e-conveyancing simplifying and speeding up the process, conveyancers may be forgiven for thinking that the proposed system in some ways falls somewhat short of that objective, and displays a fundamental misunderstanding of the problems and delays that occur in a typical transaction that really have little to do with the process of online document assembly and title registration.


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