Loan sales: buyer’s evidence fails Supreme Court review

The High Court dismissed an application for a well loading order and a sale order when a loan buyer failed to produce evidence of the creation of a fair mortgage. It ruled that the evidence of the registration of a related lien was insufficient and pointed to the implication of this decision for other cases pending before the court.

In Promontoria (Oyster) DAC vs. McKenna,¹ the defendant entered into a loan agreement with Ulster Bank in 2005. The collateral for the loan was provided by an equity mortgage, namely the deposit of a land certificate.

Prior to the Deeds and Titles Registration Act 2006 (“Law of 2006It was possible to create a fair mortgage on land registered in this way. The procedure for applying this guarantee consisted of requesting a well loading order and a sell order. This was proof necessary for such a request to establish that the land certificate had been deposited as security for the debt concerned.

Following the enactment of the 2006 law, land certificates were no longer issued, so this procedure was abolished. However, holders of an existing security interest had three years to register the security interest as a lien. In the absence of registration, the deposit of a land certificate can no longer be invoked as a guarantee on the land concerned. In this case, a lien was registered in time as a burden against the defendant’s interest in the land.

Ultimately, the benefit of the loan agreement and the lien were transferred to the applicant as part of a loan sale. The details of the lien have been updated to reflect the applicant’s interest. The court admitted that the plaintiff had this interest, but the question for the court was whether the plaintiff still had to provide proof of the creation of the fair mortgage in the first place. Simons J. concluded that it did.

Court decision

Simons J pointed out that the 2006 law does not provide for an express statutory remedy for the enforcement of these registered privileges. This means that the holder of such a registered lien who wishes to assert his security interest must do so by way of an application for a well loading order and a sale order in accordance with the inherent jurisdiction of the court.

He then looked at the essential evidence here. He said that it is a necessary precondition for making such a request that the principal sums are due and owed. He explained that this is one of the proofs of a request for enforcement of a legal charge under the Title Registration Act of 1964. The mortgagee under an equitable mortgage could not not be in a better position than the holder of a legal office, so at a minimum, they too must establish that the principal sums secured by the lien were due and payable.

This meant that a plaintiff not only had to establish that the lien had been registered as a burden, but also had to establish the existence of a contractual arrangement under which a debt had been secured on the land and demonstrate that the principal was now due for reimbursement.

This meant that an applicant had to produce evidence regarding the filing of the land certificate. It was on this event that the equitable mortgage was created which was subsequently registered as a lien.

In this case, the necessary evidence has not been provided. The only reference to a deposit of the land certificate was in the letter of offer, but it was documentary hearsay. The registration of a lien by the Property Registration Authority (“PRA”) Was, on its own, insufficient to give the claimant a right to the remedies sought. The privilege was only a statutory record of the prior event. The registration of the lien by the PRA was merely an administrative function, and the PRA had not commented on whether the funds were actually charged to the land. It was a function reserved for the court.

While the decision in this case does not negate the validity of an equitable mortgage created by a land certificate deposit (assuming it was registered as a lien within the relevant timeframe), it erects an additional obstacle to its execution. When information on the date of creation of the mortgage (by deposit of the land certificate) is available in the files, this should be simple to overcome. However, when this information is not available, it may be difficult to obtain the legal assistance required to enable the execution of the mortgage.

For lenders who have taken collateral in this manner, it will be important to ensure that their systems have captured all of the relevant information. For potential loan buyers, it will be important to identify whether the loans offered for sale have been secured by the filing of a land certificate and, if so, to ensure that all relevant information is transferred when filing. the sale of the loan.

While Justice Simons rendered a similar ruling in Promontoria (Oyster) DAC vs. Greene,² it will be interesting to see how the case law evolves on this issue and whether the courts can offer some flexibility as to the level of information required.