Mortgage redemption by phone call results in Court of Appeal case.

Mortgage redemption by phone call results in Court of Appeal case.

The Court of Appeal has confirmed that solicitors are in breach of trust in a remortgage transaction unless they get a valid redemption statement from the existing lender.

Mark Redler & Co Solicitors (MRC) admitted negligence when they acted for AIB on a remortgage transaction and failed to obtain a valid redemption statement. 

At the outset of the transaction, the redemption figure for the existing lender, Barclays, was estimated at £1.5m. A redemption figure of approximately £1.2m was obtained by telephone. 

On confirming this lower amount with the borrower, MRC transferred this amount to the existing lender Barclays and the balance to the borrower.

The amount transferred was insufficient to discharge the existing charge and subsequently AIB’s charge was registered as a second charge over the property with Barclays retaining first legal charge for the £300,000 still owed to them.

AIB later repossessed the borrower’s property and bankruptcy orders were subsequently made against them.  These losses exceeded the £300,000.

In the Court of Appeal Lord Justice Patten confirmed that for completion to take place, the solicitor must hold the relevant documents relating to the transaction. 

MRC were therefore required to be in receipt of a valid redemption statement and a solicitors undertaking or unconditional confirmation that the advance monies would be applied to redeem the existing charge.

As completion had not taken place, MRC acted in breach of trust by releasing funds without authority.

If required documents were attained and completion had taken place, the subsequent failure by solicitors to pay sufficient amounts to discharge the existing mortgage would amount to breach of retainer.

Compensation for breach of trust was limited in this case to the outstanding amount owed to Barclays as if the transaction had proceeded with no breach of trust, AIB would have made the same losses but for the £300,000.

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