Accidentally releasing a mortgage can be costly for secured lenders. However the recent ruling by the Court of Appeal in NRAM Ltd v Evans [2017 ] EWHC Civ confirms the Courts in some circumstances will come to the rescue.
In 2004 Mr and Mrs Evans bought their home with the help of an advance from Northern Rock which was secured by a mortgage deed registered at the Land Registry. At the same time they took an unsecured loan. These two facilities were allocated the same account number ending “56522”.
These facilities and further borrowing on new accounts were consolidated into one loan in December 2005 which was allocated a new account number ending “09581”. So at that point the 2004 liabilities had been subsumed into the 2005 loan and the account number 56522 closed. Northern Rock did not however need a new mortgage because the deed signed in 2004 was “all monies“ securing both current and future lending.
Both Mr and Mrs Evans then experienced financial difficulties, fell behind with their repayments and eventually became bankrupt. In the bankruptcy Northern Rock was treated as a secured creditor.
Following discharge of their bankruptcy, solicitors on their behalf wrote to NRAM (the successor to Northern Rock) quoting the original “56522” account only and requested release of the 2004 mortgage on the basis the 2004 borrowing had been redeemed in December 2005. They made no reference to the lending in 2005.
As the Court noted, the letter from the solicitors “presented a far from complete picture” and NRAM released the mortgage (by filing the relevant electronic form of discharge (e- DS1) with the Land Registry) before realising that in 2005 the liabilities had been consolidated and remained outstanding.
The Evans refused to voluntarily allow the charge to be re – registered so NRAM issued proceedings seeking an order for restoration of its charge at the Land Registry after initially registering an unilateral notice. Formal rectification of the register was not possible because it correctly recorded the receipt of the e -DS1. But the form itself was submitted in error by NRAM - an error “induced“ by the solicitors’ letter. This allowed the Court to effectively set aside (“rescind“) the e-DS1 and then order the Land Registry should be “altered“ to bring the Register “up to date” by restoring the security back onto the register.
The decision confirms that in some circumstances a mortgage mistakenly released can be restored to the register. The lesson for lenders is to ensure they have systems and processes in place to ensure all liabilities are repaid before releasing security.
The above article appears in the December 2017 edition of “ The Consumer Credit Magazine “ published by the Consumer Credit Trade Association