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Social media’s mortgage revolution does not materialise

Mortgage document with key Print publication

12/04/2017

As the courts continue to debunk the ‘get out of debt free’ mortgage revolution which borrower-friendly internet sites and social media have sought to get off the ground, Rebecca Calland explains the argument that has incited interest and controversy amongst banks and borrowers, but which has failed to garner any valid legal traction.

The argument…

Troubled times, when the cost of living rises while wages and the public purse are being squeezed, can produce some interesting, and even ingenious, attempts by debtors to avoid paying their dues. Factor in the internet, consumer forums and the power of social media, and the result can be increasing numbers of borrowers seeking to evade their liabilities, almost regardless of the legal merits of such attempts.

In recent weeks banking litigation practitioners have reported increasing numbers of cases in which borrowers have issued or defended court proceedings on the basis of a highly technical legal argument which has been doing the rounds on social media.

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A) provides that a contract for the disposition of an interest in land must be made in writing, incorporating all the terms of the contract, and signed by each party to the contract.  Section 27 of the Land Registration Act 2002 (LRA) provides that if a disposition is required to be completed by registration then it does not operate at law until the relevant registration requirements are met; and that the grant of a legal charge (or, a mortgage) is a disposition which is required to be completed by registration.

The argument, asserted by borrowers in numerous cases, prompted by borrower-friendly forums on unregulated internet sites, is, in short:

  • that a mortgage is null and void for want of statutory formality because it is signed by the borrowers only and not the lender and does not therefore comply with LP(MP)A
  • that a mortgage does not therefore exist at law and so cannot be completed by registration as required by LRA and
  • that a mortgage is not, therefore, binding on the borrowers.

Following this line of reasoning, some borrowers have been led to believe that, having fallen into arrears they need not clear their debt; or even that they can cease paying their mortgage altogether, without in either scenario risking losing their homes.

It is clear why this argument has been publicised in some quarters as being potentially ‘revolutionary’. If found to be correct, the argument would be of major concern to mortgage lenders and would require an urgent and whole-scale review of existing and future residential property mortgage investments.  If (as is the case) the argument is wrong, however, belief and reliance upon it exposes borrowers to the real and serious risk of losing their homes, adding to the problems of those already in financial difficulties.

…Debunked

The argument, whilst it may be superficially attractive, has a fatal flaw.

In short, the mortgage deed is not a contract “for the disposition of an interest in land” and mortgages are therefore not within the scope of section 2 LP(MP)A. A mortgage deed is effectively a contract of disposition (that is, it is the instrument actually effecting the disposition); it is not a contract for a disposition at some time in the future.  This technical but very important distinction has been confirmed by the courts, notably in the case of The Mortgage Business Plc v Lamb [1] and recently by the Court of Appeal in Rollerteam Ltd v Riley [2].

The relevant statutory provision for a mortgage, section 53 of the Law of Property Act 1925 (LPA), does not require every term to be included in a document signed by both parties.  Rather, the document just needs to be signed by “the person creating or disposing of the interest” (i.e. the mortgagor/borrower).  Further, section 27 LRA does not go so far as to say that a disposition required to be completed by registration (such as a mortgage) is created by registration and that it does not therefore exist or operate in equity before registration.

WM Comment

Lenders following this line of cases will no doubt be pleased to note that the courts are continuing to dismiss as hopeless borrowers’ unmeritorious attempts to avoid their mortgage liabilities on this basis.

Any such claims or defences should be immediately resisted in the strongest terms and, in the interests of treating customers fairly, borrowers should be advised to take proper legal advice and to discontinue any misconceived legal proceedings at the earliest possible time. It is, of course, in the borrowers’ interest to keep any associated costs to an absolute minimum, not least because they can, in the usual course, be added to the mortgage account in accordance with the mortgage terms, any they may therefore exacerbate any existing borrower-affordability issues.

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[1] 12 July 2013, In the Preston County Court on appeal from the Burnley County Court (Unreported)
[2] Rollerteam Ltd and another v Riley [2016] EWCA 1291

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