The Supreme Court has ruled in the case of Waller-Edwards v One Savings Bank plc that a mortgage lender has a duty to investigate whether one party was under the undue influence of the other when taking out a mortgage that would be used to pay off only one party’s debts.

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In this case, Ms. Waller-Edwards took out a joint re-mortgage with her ex-partner, Mr Bishop.  Before meeting Mr Edwards, Ms. Waller-Edwards had owned her home without any borrowing.  Mr Edwards however persuaded her to permit him to use equity in her home in exchange for another property Mr Edwards was building.

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The lender agreed to a mortgage for the purpose of paying off a prior mortgage, to fund the purchase of another property and for some of the mortgage funds to be used to settle some of Mr Bishop’s personal debts.

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However, Mr Bishop used the mortgage funds to pay off an existing mortgage and the rest to settle his divorce proceedings.

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The relationship ended and the lender sought possession based upon mortgage arrears.

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The Supreme Court held unanimously that the lender, One Savings Bank PLC, should have carried out checks to discover whether undue influence was placed on Ms. Waller-Edwards by her partner, because it knew that money it was lending would be used in a way that did not benefit her financially.

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Lenders (and those acting on their behalf) are now on notice in any joint mortgage borrowing cases, where part or all of the borrowing serves to discharge the debts of only one of the borrowers and not the other, that there is a risk of undue influence and other financial abuse. Further inquiries must be made by the Lender, and independent legal advice will be required.

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The additional burden on lenders will undoubtedly cause additional consideration and delay as part of the mortgage underwriting process; as well as additional risks upon solicitors advising in joint mortgage borrower cases.  However, the court have provided a vital protection to those who may be financially vulnerable.  

Should you require any further information regarding what rights you may have in the case of financial undue influence, please do not hesitate to contact Mr Bill Dhariwal on DDI: 01489 864 117 or E: bill.dhariwal@lawcomm.co.uk

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_{The content of this article does not constitute legal advice and should not be relied upon as such.}