How Do Solicitors Check Source Of Funds?
When selling a property in the UK, it is usually recommended that you instruct a solicitor to handle the legal aspects of the transaction. One of the important duties of the solicitor is to carry out checks on where the buyer’s funds are coming from to purchase the property – known as checking the ‘source of funds’. This is an essential part of the conveyancing process and helps prevent money laundering and other illegal activities. But how exactly do solicitors go about checking the source of funds when you sell your house?
Why Check the Source of Funds?
Solicitors are legally required to check the source of funds under anti-money laundering regulations. This applies to property transactions over a certain value. The regulations are designed to prevent money laundering and kerb terror financing. When you decide to sell your house, your solicitor must take reasonable measures to check where the buyer’s money is coming from and make sure it is through legal means. This helps minimise the risk of fraudulent funds being used to purchase property in the UK. Checking the source of funds is now standard procedure for solicitors and an important part of protecting the integrity of the UK property market.
What Information Do Solicitors Ask For?
When acting for the seller, the solicitor will ask the buyer’s solicitor to provide documents verifying the source of funds used for purchasing the property. This information may include:
- Bank statements showing regular payments into an account over several months. This provides evidence of income to support the funds for the purchase.
- Documents relating to the sale of another property owned by the buyer. Money received from a property sale is considered a legitimate source of funds.
- Equity release paperwork if the buyer is using money from their existing home. The solicitor can verify funds raised through equity release.
- Proof of inheritance if some or all of the funds originate from family inheritance. Legal documents would be required as evidence.
- Business accounts verify that the buyer owns a company and is using savings or director’s loan accounts for the purchase.
- Records of gifts or loans from a family member or third party providing some or all of the purchase funds. Identity documents are needed to prove any large gifts.
The solicitor may ask to see originals or certified copies of documents that clearly show legitimate sources for the buyer’s funds. This provides a paper trail to evidence where the money is coming from and screens for any suspicious activity.
Steps Solicitors Take to Check Funds
When you instruct a solicitor to handle the sale of your house, they should take reasonable steps to check the source of the buyer’s funds. Some of the key things solicitors do include:
- Ask questions on the buyer’s circumstances and the nature of the funds – this may be via anti-money laundering questionnaires.
- Correspond with the buyer’s solicitor requesting evidence of funds and details of the buyer’s financial history.
- Verify any proposed mortgage lending with the lender. The solicitor can check if a mortgage application is underway and appears legitimate for the purchase.
- Review bank statements and transaction records provided to identify any unusual patterns of behaviour.
- Check any large deposits, transfers or gifts tally up with what the buyer has stated regarding their funds.
- Confirm the buyer’s identity matches the name on the financial documents provided. Identity checks may involve passports, driving licences or utility bills.
- Assess whether explanations and documents justifying the buyer’s funds seem reasonable and realistic.
- Look out for any missing information, vagueness, inconsistencies or unusual complexity in the buyer’s finances that may be cause for concern.
- Raise further enquiries with the buyer’s solicitor if the documentation provided does not fully verify the source of funds to the solicitor’s satisfaction.
Do I Need a Solicitor to Sell My House?
When you sell your house in the UK as the homeowner, you are free to sell privately without appointing a solicitor. However, the legal process involved in transferring homeownership is complex. Using a solicitor to act on the sale has several advantages:
- They handle all searches and legal documentation for the sale – this protects if any issues arise.
- They will carry out identity, anti-money laundering, and source of funds checks on your behalf – an important safeguard when taking on a buyer.
- They can deal directly with the buyer’s solicitor, taking the stress away from you.
- Your interests will be represented if any disputes crop up during the sale process.
- You benefit from expert advice throughout the transaction from start to finish.
While some choose to save money by selling privately, using a solicitor provides legal protection and ensures source of funds checks are completed for your peace of mind. This can avoid the risk of any illegitimate funds being used to purchase your property. With complex anti-money laundering regulations now in place, instructing a solicitor is usually the safest approach when selling your house.
How Technology Assists Source of Funds Checks
Solicitors are increasingly using technology and online systems to assist with checking the source of funds:
- Specialist digital platforms provide access to up-to-date customer identity verification tools which solicitors can use to quickly verify a buyer’s ID documents.
- Digital client portals allow solicitors to request and view evidence of a buyer’s funds electronically rather than rely on paper copies.
- Bank account screening software can highlight any suspicious transactions in a buyer’s bank statements for further investigation.
- Electronic bank feeds offer live visibility of the latest transactions, helping identify funds leaving or entering accounts.
- Online asset searches reveal property ownership and recent sales to help trace funds.
- AML checking databases flag up individuals with known associations to crime, helping identify high-risk buyers.
Adopting technological solutions helps streamline the source of funds process for solicitors. It enables faster and more thorough monitoring of the buyer’s finances for irregularities. While technology has its limitations, it is a useful aid to solicitors in assessing and evidencing the legitimacy of buyer funds.
Verifying the source of funds is now a legal obligation for solicitors handling property sales in the UK. When acting on your behalf as the seller, the solicitor must gather evidence and check documentation so that any buyer’s funds used originate from legal sources only. This may involve reviewing bank statements, sale proceeds, and mortgage offers to create a financial picture of the buyer. While technology aids the process, human judgment is also crucial. An experienced solicitor will combine both to thoroughly screen buyer funds and satisfy anti-money laundering regulations. This provides protection and assurance when selling what is likely to be your biggest asset. So, for your peace of mind, it is advisable to instruct a solicitor you can rely on to complete all essential checks – including verifying the legitimacy of the buyer’s source of funds. Additionally, you may wonder, “Do I need a solicitor to sell my house?” The answer is yes, as having a solicitor is essential to navigate through the legal complexities of selling a property.