A recent case will provide some comfort to lenders who mistakenly release a mortgage registered against a property at HM Land Registry but also provides a salutary lesson.
The error has involved the lender in litigation in both the High Court and the Court of Appeal.
In 2004 the borrowers took out a loan from the lender of £197,000 to buy a property. The loan was secured by a mortgage that was entered on the charges register of the property at HM Land Registry. The mortgage was expressed to secure further advances.
At the same time the borrowers also had an unsecured loan of £21,400 from the lender and the entire lending in 2004 was given one mortgage account number.
By 2005 the borrowers had four accounts with the lender and asked to move all their borrowings to one mortgage product. The lender agreed to a secured loan of £213,000 and an unsecured loan of £22,300. The entire 2005 loan was given a new account number and the 2004 loans were redeemed. No change was made to the register at the Land Registry.
Between 2006 and 2007 the borrowers ran into financial difficulties and became bankrupt but continued to repay the 2005 loan for the next six years following their discharges from bankruptcy.
In 2014 the borrowers’ solicitor wrote to the lender requesting the removal of the 2004 mortgage from the title. The letter referred to the 2004 mortgage account number but made no reference to the 2005 loan as the solicitor was not aware of it.
The lender checked its system for the 2004 mortgage account number. The system showed that the 2004 loan had been redeemed but did not reveal the 2005 loan. The lender provided an electronic discharge to the Land Registry to remove the registered mortgage.
Subsequently the lender realised that the 2005 loan existed and informed the borrowers’ solicitor that the electronic discharge should not have been issued as the mortgage also secured the 2005 loan. Litigation ensued.
The High Court decided that the discharge should be set aside for mistake and the lender was entitled to rectification of the register to reinstate it as proprietor of the 2004 mortgage.
The borrowers appealed. They argued that the lender was wholly responsible for the mistake and the borrowers did not contribute to it in any relevant way.
Court of Appeal’s decision involved a detailed examination of the scheme in the Land Registration Act 2002 which confers powers on the court to make alterations to the register for the purpose of correcting a mistake or bringing the register up to date. It dismissed the borrowers’ appeal but held that the High Court was wrong to call the alteration to the register a rectification.
This is technical land registration law but essentially where an alteration to the register amounts to a rectification, there are more obstacles to overcome to demonstrate that the register should be altered. Also rectification will give rise to an indemnity from the Land Registry where a person suffers loss.
The important result for the lender was that its mortgage was reinstated and could remain reinstated but it was involved in two years of litigation to secure that outcome. The decision is a reminder to lenders of the importance of ensuring that their systems are set up in such a way that they show all loans secured by a mortgage that also secures further advances, particularly where the first loan is discharged.
This blog post was written by trainee solicitor Imogen Cox.
 NRAM Plc v Evans and another