Thomas Byrne (Meath East, Fianna Fail)

I am not here to comment on any particular case before the courts as regards solicitors' undertakings and what essentially are allegations of fraud, particularly by solicitors who are namesakes of mine. What is being heard on a daily basis is devastating for the solicitors' profession and public confidence. I have often said that the genuine and rare mistakes of solicitors could be accepted provided the solicitor concerned was honest and confidential. After all, that is why there is professional indemnity insurance. When honesty is in doubt, however, the solicitor has no function in the community. The vast majority of solicitors provide a fantastic service to clients. Often one finds that successive generations of a family will have used the services of successive generations of a family solicitor. The connections are both personal and professional.

Turning to the issue in hand, the system of solicitors' undertakings has to be reviewed in terms of how it currently operates. As matters stand, the banks presumably are worried about it and I trust the Law Society has concerns too. The system of solicitors' undertakings for mortgage lending is a great but relatively recent innovation, as it eliminates the need for a mortgaging bank to have its solicitor acting for it when a borrower is obtaining mortgage facilities in respective of residential lending. Instead, the borrower's solicitor solemnly and personally undertakes to do everything necessary to protect the bank's interest in the mortgage transaction, particularly as regards registering the borrower as the owner of the property and the bank as having the first legal charge on it. The upshot for the borrower was that the cost of the bank's solicitor were eliminated, thereby reducing his or her liability substantially. Residential property transactions could proceed much more smoothly. It is often forgotten that undertakings are personal to solicitors and the solicitor is personally liable for everything he or she undertakes to the bank. This is a significant burden on solicitors, particularly given rising property values. However, the system of solicitors' undertakings was never intended to apply to commercial property transactions.

From my experience as a solicitor and media reports, I understand the system of undertakings thrives in the commercial property lending sector. For what might be massive transactions, many banks accept solicitors' undertakings to stamp and register the interests of borrower and bank without employing their own legal team. The solicitor in this case has no solicitor-client duty to the bank. This is often misunderstood and has implications in the current crisis because it means banks should have no recourse to the compensation fund of the Law Society which is for clients only. I hope this is the view of the society because banks should not be compensated for reckless lending.

In many cases, the process of undertaking in respect of a commercial mortgage is extraordinarily simple. In my direct experience, a borrower could obtain approval for millions of euro in respect of a commercial property and the money would be issued immediately on the bank's receipt from the solicitor of a simple, one-page undertaking signed by the borrower's solicitor. This would be an undertaking to stamp and register the deeds to the mortgaged property. However, the system is totally dependent on the borrower's solicitor. If there is a mistake, the bank will hope there is adequate professional indemnity cover. This may often not be the case in commercial property transactions in the light of their generally high value, despite recent welcome increases in cover required by solicitors. If there is dishonesty, as we have seen, all bets are off.

Of the major banks of which I am aware, one branch attempted to withdraw the facility of solicitors' undertakings in commercial transactions. However, when the bank's customers started to complain about the added costs of the bank's solicitor which they are required to bear, the branch simply dropped the requirement and returned to relying on the borrowers' solicitors' undertakings.

What has really come to light in the media recently is the scandal of solicitors giving undertakings regarding their own borrowings on properties they are buying themselves. It is completely crazy for banks to be lending money on the undertakings of their own borrowers to register the banks' interests. In this case, the banks have only themselves to blame but the implications are very wide.

I know of a minor case in which a solicitor, when buying his family home, asked the bank specifically whether it would be acceptable to give his own undertaking on his borrowings. The bank stated this would be fine as long as he asked another solicitor to witness his signature on the mortgage deed. Happily, I was in the position to oblige my colleague but we were both aware of the absurdity of the bank's position.

From my experience, generally as a country solicitor, I have found that worry about title deeds keeps a lot of clients awake at night. Fears are generally unjustified and often based on conjecture and worry instilled by third parties with a lack of knowledge. However, there are many clients of certain solicitors awake at night owing to justifiable fears about the title deeds to their property and their ownership of it for which they paid and are still paying.

The vast majority of solicitors, 99.9%, are devastated by recent events, but we must learn from experience. I call on the Minister for Justice, Equality and Law Reform to initiate discussions with the Law Society to review the system of undertakings in lending transactions and particularly to bring to an end the system of undertakings as used in commercial property lending transactions which was never intended to be used in these cases and which, ultimately, is the root cause of the current crisis.

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