Mortgages, like other legal documents, can be invalid if formalities are not followed to the letter. However, an important Supreme Court ruling has slammed the door on those who might otherwise have been unjustly enriched by administrative errors.
A woman was given a property by her parents which was subject to a £1.45 million mortgage. However, she only became aware of the existence of the charge some years later. There was no dispute that the mortgage was void in that the woman had not signed it and it had been altered without her consent.
The loan was extended after existing borrowing of about £2.2 million secured on the parents’ former home was partially paid off and that mortgage discharged. That arrangement released £875,000 which was used to purchase the property. The bank argued that it was entitled to step into the shoes of the vendor of the property and, as a matter of contract, could recover £875,000 from the woman.
That argument was rejected by the High Court but succeeded before the Court of Appeal. In rejecting the woman’s challenge to the latter decision, the Court found that, if she were not liable under the mortgage, she would be unjustly enriched at the lender’s expense. Having received the property’s freehold for nothing, she had directly benefited from the overall lending arrangement. It would be unjust if she were placed in a better position than her parents, who had not been entitled to give her the property free of the intended mortgage.