January 2011

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Publication

Government announces package of measures to enhance consumer protection in the mortgage market HM Treasury: 26 January 2011

The Financial Secretary to the Treasury, Mark Hoban, has announced a package of measures intended to enhance consumer protection in the mortgage market. These measures will: • Transfer the regulation of new and existing second charge residential mortgages from the Office of Fair Trading (OFT) to the Financial Services Authority (FSA), to ensure consistent standards of consumer protection and simplify the regulatory environment for lenders and borrowers; • Ensure consumer protections are maintained when a mortgage book is sold by a mortgage lender to an unregulated firm; and • Extend the current regulation of the sale and rent back market to all providers, to ensure appropriate protection for consumers. “The Government believes that this package of measures will enhance protection for consumers in the mortgage market. Giving the FSA responsibility for the whole residential mortgage market will simplify the mortgage regulation landscape for consumers and lenders. This will ensure that existing second charge mortgage borrowers who fall into arrears or face repossession on both first and second charge mortgages benefit from being regulated by a single organisation, maximising consumer protection and ensuring a more coordinated approach between lenders. The measures on mortgage books and sale and rent back have been introduced to address a genuine gap in the regulatory architecture, and will ensure consumers will be better protected in the mortgage market.” The statutory instruments will be published later in 2011. In advance of this, the Government expects the FSA to begin work immediately to implement these measures. For further details, see the HM Treasury page: Enhancing consumer protection in the mortgage market. HM Treasury also publishes some ‘frequently asked questions’ about mortgages. Notes: 1. First charge mortgages are already regulated by the Financial Services Authority and will be regulated by the Consumer Protection and Markets Authority (CPMA) once it has been established.

Case name	Valais Limited v Clydesdale Bank Plc
Neutral citation	[2011] All ER (D) 87 (Jan) Chancery Division, 17 January 2011
Legal points	Sale by registered chargee - effect of unilateral notice registered by equitable chargee
Facts	V Ltd was a mortgagee in possession and registered proprietor of a charge, registered against four properties. CB Plc had registered unilateral notices against each of the registered titles to protect equitable mortgages which it held over the properties. V Ltd proposed to sell the properties at auction but had been advised by the auctioneers that the presence of the unilateral notices would deter a sale. V Ltd therefore applied for an interim order for CB Plc to remove the unilateral notices. CB Plc argued that the unilateral notices was the only way it could ensure its equitable mortgages were brought to the attention of the purchasers.
Held	The application was dismissed. A unilateral notice confers priority on a valid interest (s 32(3) Land Registration Act 2002). CB Plc was entitled to the protection it conferred. However, since V Ltd as first chargee was selling as mortgagee in possession, CB Plc’s interest would be overreached by the sale and its entitlement was governed by s 105 Law of Property Act 1925 – it would be entitled to be paid any surplus after deducting the costs of sale and the amount due to V Ltd. The existence of the unilateral notices would not impede the sale since a buyer would take free of the equitable charges.
Comment	This case deals with a short, but troublesome point, which occasionally arises on the sale of mortgaged property – what is the effect of a unilateral notice which is registered against the title, typically to protect the interest of a creditor with a charging order? The answer is in fact obvious. Although a unilateral notice confers protection (unlike a caution against dealings under the Land Registration Act 1925), a unilateral notice is overridden on sale, and the interest of those who have registered it is governed by the statutory trust of the application of the proceeds of sale in s 105 LPA 1925. Properly advised, a buyer’s solicitor should be aware of this, and the auctioneers in the present case had what the judge described as “a flawed market perception”.