Accounting problems for solicitors

deposit - stakeholder money

receipt of client money but you hold it jointly for the buyer and the seller

when will owner of stakeholder deposit change

will become property of the seller when completion takes place

how to record it

can be shown on seller’s ledger but must be clearly labelled as stakeholder money held for both the buyer and seller

other option for stakeholder money

separate stakeholder ledger in the joint names of the client and the buyer and credit the stakeholder money to that account

what do you record when completion takes place and hold deposit for seller alone

make an inter-client transfer from joint stakeholder ledger account to the seller’s ledger account

who does a deposit received as agent for the seller belong to

belongs to the seller alone and is credited directly to the seller’s ledger account

when does a deposit held as stakeholder become available

not available to the seller until completion without agreement

what is a bridging loan used for

where a deposit is not available or is insufficient, its possible to take a bridging loan from a bank to cover the period from exchange of contracts, when cash will become available

what is a bridging loan and who does it belong to

personal loan to the borrower, and once received, belongs to the borrower, so credited to borrower’s ledger account not to a ledger account

on completion what happens with bridging loan

the loan and interest must be repaid to the lender

what is redeeming a mortgage

client sells property which is subject to a mortgage will have to repay that mortgage after completion

acting for buyer and lender, who is mortgage advance held for

lender until the day of completion

2 choices for how to treat mortgage funds when act for lender and borrower

1 - mortgage advance is credited to borrower’s ledger account, when received. the details column must include name of lender and fact that it’s a mortgage advance

2 - mortgage advance credited to a separate ledger account in the name of the lender on receipt. On the day of completion, funds become available to the borrower, so an inter-client transfer made to borrower’s ledger

what can you charge lender for

work done in connection with the mortgage advance, which the buyer will usually have agreed to pay

normal rule for professional charges on mortgage advance

costs and VAT must be debited to the ledger account of the person to whom the legal services were supplied

mortgage redemption - whose money is it

sale proceeds are client money, clearest way is to credit whole amount to seller’s ledger account initially and then an inter-client transfer of amount to redeem mortgage

legal fees on mortgage redemption

legal fees must initially be debited to the lender’s ledger account, then the debt will be transferred to the seller’s ledger account to show that the seller will discharge it

agency transactions

firm providing legal services may use another firm as its agent, often litigation matters