Guarantees

Question – We have a guarantor for a loan; when can we consider enforcing this following default by our Borrower?

Ascertaining when a guarantor’s liability arises under a guarantee will depend primarily upon the construction of the terms of the guarantee and sometimes the terms of the mortgage giving rise to the borrower’s repayment obligations.

Lenders are not usually required to wait until their loss has crystallised (upon sale of the security property) before being able to enforce a guarantee.  As a general rule of thumb, a guarantor will become liable for the mortgage debt upon the borrower’s default.  If so, lenders need not notify the guarantor of the borrower’s default, unless the terms of the guarantee stipulate that a demand must be sent.

Lenders should also have regard to the issue of limitation when considering enforcing guarantees.  Under the Limitation Act 1980, lenders have twelve years to recover a principal sum secured by a mortgage from a guarantor from the date the cause of action accrues.  The cause of action is normally the date of default by the borrower, however, this too will depend on the terms of both the guarantee and mortgage.

Should you require any assistance with enforcing your guarantees, we would be delighted to assist you.  For further information, please contact Georgina Squire of Rosling King LLP.

Professional Negligence

Question – Our loan completed over 6 years ago, does this mean we cannot consider a claim for professional negligence?

The short answer is: not necessarily. Whilst contractual limitation will expire 6 years from the date the cause of action arose (i.e the date of the breach of contract) it may be possible to still pursue the claim in tort. In tort, no cause of action accrues until all elements of duty, breach and damage are present. Consequently, the limitation period starts running from the date the damage is suffered.

There are various ways to ascertain this date and we will need to carefully consider the facts specific to each loan when identifying the date on which the cause of action arose. It is possible that the cause of action only arises sometime after completion. If this is the case, we may well be within the 6 year limitation period, even if the loan completed more than 6 years ago.

However, even if the limitation period in tort has expired, we may still be able to rely on secondary limitation. Section 14A of the Latent Damages Act 1986 provides that limitation will only start to run once the lender acquired knowledge of the claim. The lender will then have 3 years from the date of this knowledge to bring the claim, with a long stop date of 15 years.

We would be delighted to review any loans which completed more than 6 years ago, as this is not necessarily a bar to bringing a claim.

Repossession

Question – We wish to take possession proceedings, but we are advised that prior to our charge being completed, the borrower had moved in his sick mother who is now claiming an overriding interest; how can we proceed?

Overriding interests over a registered disposition created by actual occupation are subject to the Land Registration Act 2002 (‘LRA’) (Schedule 3).  An interest belonging , at the time of disposition, to  a person in actual occupation will override a registered disposition, so far as the interest relates to the land which the person occupies. LRA (Schedule 3) Paragraph 2 provides two relevant exceptions:

(b)   the interest of a person in occupation will not override a registered disposition if an inquiry is made of that person prior to disposition, and they failed to disclose their right when they reasonably could have been expected to do so; or

(c)   an interest created by occupation will not override a registered disposition where both of the following apply:

The interest would not have been obvious on a reasonably careful inspection of the property at the time of disposition; and
The person to whom disposition is made does not have actual knowledge of the interest at the time of disposition.
Accordingly, occupation of an interested party has to be apparent at the time of disposition.

Lenders must therefore ensure that the relevant enquiries and inspections are made at the time of disposition. If it appears that such an interest exists, lenders should ensure that a consent form is signed to waive the occupier’s interest.

Our experienced Repossessions Team would be delighted to assist you overcoming these types of issues on repossession. Please contact Georgina Squire or the partner that you usually deal with for more information.

Property

Question – We are taking possession proceedings and it has come to our attention that our charge is not registered at the Land Registry. What can we do?

Upon discovery of a defective title, a notice should be placed on the Register immediately. A lender should check that they have the relevant documents to evidence the validity of the legal charge, for example a Mortgage Deed; Transfer Deed; Stamp Duty Land Tax Form; Lease (if applicable) etc. If supporting documents are available, then an application should be made to the Land Registry for the lender’s charge to be registered and possession proceedings can then be commenced.

If, however, the lender does not have the relevant documents to evidence the charge, contact should be established with appropriate parties to obtain them (for example, the borrower, seller, or the freeholder). In the absence of the supporting documents, an application can be made to the Court for an Order for sale and, if necessary, an Order for possession. The application should only be made once the notice has been placed on the Register.

In the event that the Court refuses to grant an Order for sale, recovery can be sought from acting solicitors who were negligent when they failed to register your charge.

For assistance in dealing with defective titles, please contact Ann Ebberson of Rosling King LLP.