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Beviss and Beckingsale
Mark Ollier

Banks mortgage interest in a home

Posted by Mark Ollier on July 19th 2016 in All , MOVING HOUSE .

Where a bank allowed mortgage debtors to sell their family home to pay off part of their debts and buy a smaller home for their daughter in her name, on condition that it had a charge over the new home to secure the remaining indebtedness, but the new charge was defectively executed and so void, the bank still had an equitable interest in the new property to the value of the purported charge.

The daughter challenged the charge in court on the basis that she believed that she had received the property as a gift.  When she became aware of the charge - and not having signed it — she sought an order for its removal from the charges register at the Land Registry. The bank conceded the invalidity of the charge but counterclaimed for a declaration that it was nevertheless entitled to an equitable interest in the property.

The case revolved around the concept of “unjust enrichment” and so the court had to consider whether the daughter had been enriched, whether the enrichment had been at the bank’s expense, whether it was unjust and whether any defences were available to the daughter.

In the present case, there was no doubt that the daughter had been enriched when she became the owner of the new property. Her obligation to pay the purchase price to the vendor had been discharged. She had been enriched at the expense of the bank - which had been central to the scheme from start to finish - and the enrichment was unjust. There was no defence available to the daughter, such as a change of position defence or being a bona fide purchaser for value without notice. She was a mere donee.  The court therefore ruled that the bank was entitled to a lien on the property which reinstated the daughter’s liability under the initial charge.  

Our Property Team comment Clearly a mistake had been made by the bank when setting up the original charge document but that was not enough to invalidate the debt.  The courts will often look at what is right and what was intended in an agreement as much as they will look at what actually happened.

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