There have been a number of recent challenges to the ability of acquirers of loans to enforce the associated security. A recent Supreme Court judgment has clarified the procedural steps that the acquirer of such loans should take to enable it to enforce security and confirmed that the borrower does not benefit from any defects in such steps. This should assist acquirers in realising value.

Outright sales of loans by banks (as opposed to securitisation) are an established feature of the Irish financial landscape. The assignment of security over registered land forms an integral part of most such transactions.

Freeman & Freeman v Bank of Scotland plc & Ors

Outright sales of loans by banks (as opposed to securitisation) are an established feature of the Irish financial landscape. The assignment of security over registered land forms an integral part of most such transactions.

A recent Supreme Court decision in Freeman & Freeman v Bank of Scotland plc & Ors. [1] has confirmed that an assignee of security over registered land needs to be registered as owner of the security, before it, or a receiver appointed by it, is able to convey good title to land to a purchaser. However, the case also confirmed that the borrower does not benefit from any failures by the acquirer to take the required procedural steps.

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Section 62(6) of the Registration of title Act 1964, as amended, provides that:

“On registration of the owner of a charge on land . . . the registered owner of the charge shall, for the purpose of enforcing his charge, have all the rights and powers of a mortgagee under a legal mortgage, including the power to sell the estate or interest which is subject to the charge.”

The Supreme Court decision in Kavanagh v McLaughlin [2] confirmed that non-registration of a charge in the name of the transferee under a cross-border merger did not invalidate the appointment of a receiver by the transferee pursuant to a contractual power of appointment in the charge. By close analogy, this decision is equally applicable to purchasers of loans.

However, one of the judgments in McLaughlin left a question outstanding as to whether the transferee of security, or a receiver appointed by such a transferee, could effectively exercise a power of sale and give good title to a purchaser without being registered as owner of the charge.

This precise issue was considered in Freeman.

That judgment determined that:

  • non-registration of a charge over registered land in the name of the chargee does not prevent a purchaser of the land obtaining an interest that is valid against the owner of the charge; but
  • there would be a difficulty with such a purchaser registering their title until the charge is appropriately registered.

Accordingly, where land subject to such security is sold, the purchasers’ solicitors will likely insist that the charge is appropriately registered. Moreover, in some cases, obtaining such registration may require a number of pending dealings to be completed.

The judgment leaves open the question as to how to resolve any ‘blot’ on the title to registered land, where the Land Registry had registered transfers before the registration of the charge was completed. However, in light of to the conclusiveness of the Register, provided for by section 31 of the Registration of Title Act 1964, the judge noted that it is “difficult to imagine that the transferees could have any problem with their title”.

Comment

The judgment is to be welcomed as it increases the certainty that acquirers of loans can realise their security. That said, the procedural steps required by the judgment may cause some delay and increase costs in some cases.

A loan acquirer or other transferee of a charge over registered land should take the procedural steps to ensure that it is registered as the owner of the charge in the Land Registry, before it, or a receiver appointed by it, sells the land.

Where sales have been contracted but not yet completed, the charge can, and should, still be registered to enable the purchaser to obtain registration of his, or her, title.