Care needed when discharging charges for borrowers with multiple accounts

November 2015

Care needed when discharging charges for borrowers with multiple accounts


Secured lenders must take great care when discharging their security for borrowers with more than one loan account.  If they do not have adequate systems in place to ensure that outstanding liability across all accounts is picked up, a lender could inadvertently turn itself from a secured to unsecured creditor through an administrative error. The lender could then have great difficulty in remedying its mistake. These were the lessons from a recent High Court case, NRAM plc v Evans.

This case related to borrowers who took a loan out to purchase a property in 2004 (“2004 Loan”), which was secured on their property by way of a charge. In 2005, the borrowers asked the lender to move all of their borrowings to one mortgage product to reduce their monthly repayments. The lender therefore issued a new loan (“2005 Loan”) (with a different account number from the 2004 Loan) to the borrowers and the 2004 Loan was redeemed using the 2005 Loan. The charge over the property remained in place.  It was an “all monies” charge, so secured any amounts owing from the borrowers to the lender at any time, not just the specific liabilities under the 2004 Loan.

In 2014, the borrowers’ solicitor wrote to the lender, referring to the loan account number of the 2004 Loan only, requesting that the property charge be removed from the title register as it had been redeemed in 2005. On receipt of this letter the lender checked its system for the 2004 Loan account number. Its system showed that the 2004 Loan had been redeemed but did not flag up that the borrowers had other liabilities secured by the charge. So the lender provided an e-DS1 to the Land Registry to remove the charge.

The lender later realised its mistake and sought to have the charge reinstated against the title. However, the lender was not able to do this by way of a simple administrative application to the Land Registry; it had to make a High Court application and incur considerable legal costs. On the particular facts of the case, the Court sided with this lender. However it is clear from the judgment that there could well be cases where lenders making this sort of administrative error would not be so fortunate.

We would recommend that lenders ensure they have systems which capture in one place details of all their borrowers’ loan accounts and which indicate whether existing security relates only to one of those loan accounts or is “all monies” security. These steps should allow them to avoid the problems encountered by the lender in this case.