Lawyers and lenders have welcomed a test case ruling in the House of Lords on the issue of the use of a matrimonial home as security on a loan.
Banks will now be obliged to ensure that both parties have taken proper legal advice before agreeing to put their property down as security.
The 125-page ruling, which reversed the court of appeals decision on the Royal Bank of Scotland v. Etridge & others cases, is intended to stop women from signing over their shared home as security for a loan by their partner without their consent. The case was brought to the Lords by eight women who claimed that they had not been given legal advice.
Jes Salt of the Solicitors Indemnity Fund welcomed the decision. “This is a victory for common sense. A solicitor specialising in residential conveyancing and mortgages cannot also be expected to be an expert in company finances and psychology at the same time. If the Lords had not made this decision, solicitors all over the country would have had to think carefully before agreeing to advise on otherwise routine transactions. The funding of small businesses could have suffered considerably.”
Katharine Fenn, a solicitor with Denton Wilde Sapte, said: “This area of the law has been subject to a lot of litigation, and the law lords ruling has finally clarified it. Its good because it finally sets out exactly what banks and solicitors have to do, so everyone knows where they stand.”
Richard Holt, a solicitor with Evans Derry Binnion which represented one of the women, said: “This will actually be quite a good thing for lenders as well as people getting the loans. It means they will be able to lend with confidence.”
A spokesman for Royal Bank of Scotland agreed: “It fills in a lot of gaps. We are pleased that the outcome supports the procedures that we have taken. We believe that it is in the interest of all concerned that there should be proper procedures for ensuring that a spouse fully understands the nature and implications of this sort of transaction.”
The Lords advised that banks dealing with spouses in this situation should take the following action:
- Ask for the name of the solicitor advising the woman in this situation.
- Communicate directly with the woman, informing her that for its protection it will require written confirmation from a solicitor acting for her to the effect that the solicitor has fully explained the nature of the documents and the practical implications they will have for her.
- Tell her that the purpose of this requirement is to ensure that she will not be able to dispute that she is legally bound by the documents once she has signed them.
- Ask her to nominate a solicitor whom she is willing to instruct to advise her, separately from her husband, and act for her in giving the necessary confirmation to the bank.
- Tell her that , if she wishes, the solicitor may be the same solicitor as is acting for her husband in the transaction. If a solicitor is already acting for the husband and the wife, she should be asked if she would prefer a different solicitor to act for her regarding the banks requirement for confirmation from a solicitor.
EGi News 12/10/01
