Application for “non-status” mortgage – Defendant solicitor acting for both parties – Applicant misrepresenting current commitments and residence intentions – Copy application form not sent to defendant – Whether defendant negligent in confirming compliance with mortgagee’s conditions
The Mill, Felsted, Essex, had been bought by B as a residence in 1983 for £150,000. On June 1 1988 B mortgaged the property to Home Bridging plc (HB) to secure a loan of £262,500, which was applied to discharge earlier charges on the property. On October 21 1988 B obtained planning permission to convert the Mill into flats. On February 10 1989 B remortgaged the Mill to HB to secure an increased loan of £367,000. Shortly afterwards B granted a second mortgage to secure a £30,000 private loan. In February 1990 B, pressed for repayment by both mortgagees, had the Mill professionally valued at £650,000 and applied to the plaintiffs for a £487,500 loan, his intention being to replace the existing loans and to effect the conversion. In response to pertinent questions on the application form, B made no mention of outstanding loans secured on two houses in Wales which he had bought in 1988 and falsely declared that he intended to reside at the Mill. Since the requested advance was for less than 80% of the stated value no further financial information was required or given. The defendant solicitor, who had acted for B when he purchased in Wales, was also engaged by the plaintiffs on terms, inter alia, to ensure compliance with their general and special conditions as enclosed with his instructions. General condition 4 required the applicant to personally reside in the property within 30 days of completion. Further conditions required that “the applicant’s existing mortgage(s) must be redeemed on or before completion of this advance”. The defendant did not receive a copy of B’s application form.
The advance was made on April 6 1990 after the defendant had certified the title and had undertaken to comply with the plaintiffs’ conditions. In fact the entire advance and more had to be applied to discharging the earlier mortgages on the Mill leaving B unable to meet his repayment obligations. Having taken possession in 1991 the plaintiffs sold the Mill in December 1994 for £240, 000. In subsequent High Court proceedings the plaintiffs alleged that the defendant had failed to inform them that B would be unable to pay off the loans secured on the two Welsh properties and that B had no intention of occupying the Mill within 30 days of completion. It was common ground that the plaintiffs, in offering a “non-status” mortgage, had made no inquiries of anyone other than B and the defendant. Those allegations were rejected and the plaintiffs appealed.
Held The appeal was dismissed.
1. Construed in context, the relevant conditions did not require the defendant, as a reasonably competent solicitor, to inform the plaintiffs about mortgages over properties which B was not required under the terms of the offer to redeem. In the absence of information to the contrary the defendant was entitled to assume that B had given full and accurate answers about his assets and liabilities and it was no part of his duty to supply information about B’s financial position: see National Home Loans v Giffen Couch & Archer unreported CA June 18 1997.
2. A reasonably competent solicitor would have been entitled to find that the facts were consistent with an intention by B to use the Mill as a secondary residence, and hence as a “personal residence” as required by general condition 4.
Nicholas Patten QC and Ian Gatt (instructed by Lewis Silkin) appeared for the appellants; Elizabeth Weaver (instructed by Ince & Co) appeared for the respondents.
