Solicitor’s certificate basics guide

Solicitor's certificates for borrowers, guarantors, and security providers are a persistent and expensive source of claims. Practitioners who provide these certificates without a structured process risk serious consequences for their clients and their own files.

Most solicitor's certificate claims do not involve practitioners who set out to do the wrong thing. They involve practitioners who were asked to attend a short meeting, explain documents to the borrower and guarantor under time pressure, and sign a certificate, often without opening a file, taking notes or identifying who they were acting for.

The common pattern is a borrower or guarantor later says they did not understand what they signed. If the practitioner has no file note, no documented retainer, and no record of how the client's understanding was tested, the claim is difficult to defend.

A related pattern involves what the LPLC describes as a "de facto" security provider: an elderly client who is the named borrower, but whose loan funds are used by a family member, usually a child. The client is in substance a security provider even though the documents describe them as the borrower. The same risks apply.

Example 1: no retainer, no interpreter, no notes. A practitioner met with a woman and her son regarding a loan secured against the woman's home. The son acted as interpreter and was also the guarantor. The practitioner witnessed both signatures, took no file notes, and did not ask who would receive the loan funds. When the lender sought possession of the woman's home, she alleged she did not understand she was the borrower. The practitioner believed he acted only for the mother, but there was no documented retainer clarifying this. There was no independent interpreter and no record of the advice given.

Example 2: no file opened, no record kept. A practitioner was called to a meeting with an elderly couple at a finance broker's premises. The meeting lasted approximately 20 minutes and was conducted in English, although the couple's English was limited. The practitioner advised on a loan agreement and mortgage before the couple signed the documents. The practitioner's usual practice was not to open a file for these meetings. When the lender sued for possession, the borrowers said they had no recollection of meeting the practitioner. The practitioner had no file note or record of the meeting.

In both examples, the practitioners followed a process that lacked basic safeguards. The absence of documentation made each claim functionally indefensible.

Confirm identity in person

Rule 11 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015 (Rules) prescribes the form and process for solicitor's certificates, including verification of identity. Identity of a borrower, guarantor, security provider, or grantor of a security interest must be done using the Verification of Identity Standard in the Model Participation Rules which requires the verification of identity to be conducted face to face in-person. .

It is important to take verification of identity seriously as fraudsters will go to extreme lengths in this area. In XPAK Pty Ltd v Scibilia & Ors [2013] VCC 1260, a man and a woman attended a firm claiming to be a married couple. The woman, an imposter, could not produce identification at the time. The practitioner completed the advice and certificate but held it pending identification being produced. The man later returned alone with his real wife's identification. The firm released the certificate, inadvertently facilitating a fraud.

Ask Why

Ask borrowers and guarantors why they are putting their assets at risk. This will help tailor the risk advice to the client. Cases such as Provident Capital Ltd v Papa [2013] NSWCA 36 highlight when practitioners are under a duty to draw the client’s attention to the risks in borrowing the money and the need to obtain independent financial advice.

Make file notes and confirm advise in writing

When practitioners are giving advice on matters as important as borrowing money or providing guarantees expected practice is to make a file note of the advice given. The absence of a file note or written confirmation of the advice given makes it difficult to prove in court that the advice was given. (Bakovski v Lenehan [2014] NSWSC 671).

File notes are a note to the file, not a note to you and should record:

• who was present

• a summary of questions asked and the client’s answers

• the advice given

• how the client’s understanding of the advice was tested

• how long the conference took.

LPLC recommends using its file note template when advising third party guarantors.

Use the right form -Rule 11 requirements

Rule 11 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015 (Rules) prescribes the form and process for solicitor's certificates. Section 39 of the Legal Profession Uniform Law (Victoria) (Uniform Law) makes it an offence, carrying a penalty of up to 100 penalty units, to cause or induce a practitioner to contravene the Rules.

When providing a solicitor's certificate, practitioners must:

• use only the approved LIV or Law Society of NSW forms, not a lender's own certificate form

• retain on file a copy of the signed client acknowledgement and the loan documents

• verify the identity of the borrower, guarantor, security provider, or grantor of a security interest using the verification process under the Model Participation Rules.

If a lender asks a practitioner to sign a certificate that does not comply with rule 11, refer the lender to rule 11 of the Rules and section 39 of the Uniform Law and decline to sign.

The LIV publishes four forms, available from elawforms:

The Law Society of NSW forms are also approved under rule 11 and are available at no cost to Victorian practitioners from the Law Society of NSW website.

• provided, how the client's understanding was tested, and the duration of the conference.

Use a checklist

Before signing any solicitor's certificate, use the LPLC's Key Risk Checklist: Solicitor's certificates for borrowers or surety providers to confirm each step has been completed.

Print the checklist and attach it to the front of the file at file opening so it is available at the moment of the client conference.

For further guidance, refer to the LPLC Practice Risk Guide: Managing mortgage risk

Ask borrowers and guarantors why they are putting their assets at risk. Cases such as Provident Capital Ltd v Papa [2013] NSWCA 36 highlight when practitioners are under a duty to draw the client’s attention to the risks in borrowing the money and the need to obtain independent financial advice.

Caution is required, especially when advising and providing a solicitor’s certificate to walk-in clients. In XPAK Pty Ltd v Scibilia & Ors [2013] VCC 1260, a man and a woman claiming to be a married couple approached a firm for a solicitor’s certificate. The signature of the man’s wife on loan documents was forged and the man’s companion was an imposter.

When the woman was unable to produce identification on request the practitioner completed the advice and solicitor’s certificate but held it pending the identification being produced. The man later returned alone with his real wife’s identification and the firm provided the solicitor’s certificate, inadvertently facilitating the fraud.

See the Key Risk Checklist: Solicitor’s certificates for borrowers or surety providers.