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When Aldermore completed a mortgage advance in January 2013 to Mrs Rana, there was nothing particularly remarkable about the transaction.
This was a loan facility to be secured over 3 properties registered in the name of the borrower’s sister and already charged to the Clydesdale Bank. The properties were to be transferred into the borrower’s name, the existing debt to Clydesdale be repaid, and Aldermore to take first legal charges over the security properties. Mrs Rana the borrower and transferee was raising additional capital from the transaction.
Lender’s solicitors released funds to the borrower’s solicitors against undertakings for completion.
Although solicitors did pay over the balance directly to the borrower, regrettably they misappropriated the sums which were required to pay off the Clydesdale. Clydesdale were not repaid, and understandably refused to discharge their security.
Aldermore sought and recovered £1.796 million compensation from the Law Society Compensation Fund which covered the majority but not all of their losses. In fact Aldermore were still looking at an actual losses of £368,000 and they sought to recover these from the mortgage borrower.
At first instance, in the High Court, their claim against the borrower was dismissed, although the Court agreed that the borrower should repay £78,193.64 being the sum received by her from the transaction. But the Court maintained that the borrower could not be contractually liable for any of the losses as the mortgage transaction had never been completed. Aldermore appealed. The Court of Appeal agreed.
• The essential element of a remortgage transaction included the redemption of prior mortgages.
• Unlike with a purchase transaction, the event of completion is the transfer of title to the property, in a refinance transaction the essential element is the creation of a new, first legal charge.
• As completion had not taken place the borrower had no contractual liability to Aldermore.
Jonathan Newman