I have personally acted for banks and other lending institutions for approximately twelve years. In that time, I have acted for probably ten to twelve such institutions and have never acted for a lender who is willing to sell a property as mortgagee in possession with Full or Limited title guarantee.
I know some mortgagees are willing to sell with Limited title guarantee but had I ever been instructed by a lender who wanted to do so, I would advise firmly against it.
The main reason for this is that one of the implied covenants by a seller when transferring a property with Limited title guarantee is that the seller covenants that with the buyer as follows : "the transferor has not charged or incumbered the property by a charge or incumbrance which still exists, that he has not granted any third party rights which still subsist and that he is not aware that anyone else has done so since the last disposition for value".
The words I have highlighted provide the fundamental difficulty. Most of the mortgagees we act for have hundreds if not thousands of employees. It is not possible or practical for a mortgagee to give this categorical assurance. For example, had the borrower written to the lender to inform them that he had granted a right of way to his neighbour to cross his land for some reason, this would constitute notice.
It is not unheard of for mortgagees to even agree to such a right and then lose the correspondence confirming this agreement. If for some reason the neighbour had yet to register the right, the mortgagee would breach the above covenant by not disclosing this fact. It is also not unheard of that one department within a bank may have notice of something and not disclose it to another department.
This is just a basic example and there are also other implied covenants when transferring with Limited title guarantee that I would not feel comfortable for a lender client to give. However, this implied covenant is the most obvious reason why I believe that a mortgagee should sell with "no title guarantee" which is quite standard.
Most solicitors acting for a buyer may not be happy to accept this but when meeting resistance they should be asked to consider the following:-
(a) the CML handbook does not make it a condition that Full or Limited title guarantee must be provided by a seller. It only requires that the borrower charges the property to them with Full title guarantee; and
(b) the statutory protection of purchasers from mortgagees afforded by the Law of Property Act 1925. The implied covenants of Limited title guarantee do not offer substantially more protection than the statutory provisions.
Accordingly I can see no reason why a mortgagee should sell with anything other than "no title guarantee".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
