Law firm failed in duties to mortgage company, High Court rules

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28 October 2014


housing

Negligence ruling could have implications for “many other cases”

Home Counties law firm B Legal failed in its duties to a purchaser of mortgage-backed securities, the High Court has held, in two of the four test cases it considered.

Mr Justice Norris said the determination of preliminary issues in a professional negligence action brought by Redstone Mortgages would have “implications for many other cases”.

The court heard that Beacon Homeloans provided mortgages to home-buyers, which were sold as they were completed to Redstone. Redstone took an assignment of all the rights and liabilities of Beacon.

“The object of the exercise was that the mortgages purchased by Redstone would be bundled, securitised and offered to the market as residential mortgage backed securities,” Norris J said.

The judge said that the “origination and securitisation of the mortgage securities was part of a single commercial venture”, with Redstone being incorporated in April 2004 and Beacon coming into being in December 2004 “with the intention that it operate as an authorised lender in the sub-prime market”.

Norris J went on: “B Legal was incorporated in May 2005 with the intention that it operate as the dedicated conveyancing solicitor both for the taking of residential mortgages by Beacon and for the assignment of those mortgages to Redstone. Operations commenced in August 2005.”

He said B Legal acted for Beacon both on the taking of the original mortgage and its assignment for a fixed fee of £200 each.

Norris J described how B Legal shared the same offices as Beacon in Marlow, Berkshire, “operating from a bank of desks next to Beacon’s underwriting and completion teams”. He said the firm’s “effective principal” was Nicola Chard.

Delivering judgment in Redstone Mortgages v B Legal [2014] EWCA 3398 (Ch), Norris J held that in the first case “Beacon was told untruths by its borrower and its solicitors are not to blame”.

He said B Legal had discharged its contractual duties to Beacon and its common law duty to Redstone, in both the first and the second cases.

However, in third Norris J held that B Legal had breached its duties by failing to report properly on title, though not in the exact manner pleaded, and in its provision of an unqualified certificate of title.

In the fourth case, the judge said: “In my judgment simply to report that ‘this is a shared ownership lease with the council’ was not adequate. It did not enable Beacon to do anything. B Legal had a copy of the lease.”

Consideration of the terms of the lease would have made clear that an unqualified certificate of title could not be given “because the property could not be disposed of for full market value” and was subject to a restriction.

Mr Justice Norris ruled that in the fourth case B Legal had again failed to discharge its duties to Beacon and to Redstone.

He said there would be a further short hearing to address the terms of the order and consequential issues, and he would extend the time for appealing until 21 days after the further hearing.

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