Raising Cash on the Security of Your Home? Always See a Lawyer First!

Many vulnerable people who fall into debt are tempted to raise cash on the security of their homes. However, a case in which an elderly couple came within an ace of losing the roof over their heads stands as a warning to all that such arrangements should never been entered into without first taking professional advice.

In response to a newspaper advertisement, the couple, who were in dire financial straits, contacted a company which promised to put them back in the black. After they were persuaded to sign a blank transfer form, the company conveyed their home to a property investor. The property was leased back to them on a five-year shorthold tenancy and, although it was valued for mortgage purposes at £130,000, they only received £52,000 in return for entering into the transaction.

After the couple’s tenancy expired, the investor sought possession of their home. However, in refusing that application, a judge found that they had been assured by the company that they would be able to continue living in the property for the rest of their lives. He ruled that the investor would only be entitled to assert a right to possession if the couple failed to keep up with payment of their rent.

In dismissing the investor’s challenge to that ruling, the High Court noted that one of the company’s directors had subsequently been heavily fined by the Financial Conduct Authority in respect of his involvement in similar transactions. He was found to have made misrepresentations to vulnerable property owners, including false claims that their properties would be independently valued.

The investor argued that she had no knowledge of any statements that the company may have made to the couple in order to induce them to enter into the transaction. However, the Court found that the company had acted as her, rather than the couple’s, agent. Having left all the arrangements to the company, she was not entitled to avoid being bound by assurances that the couple had received.

The investor also relied on Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which requires that contracts for the sale or other disposition of land must be in writing. However, the Court noted that the couple were not business people and were concerned to retain long-term occupation of their home. Documents relating to the property transfer and the lease were in respect of actual dispositions of land and were thus not contracts caught by Section 2.

Sahota v Prior & Anr. Case Number: CH-2018-000256