It has always been commonplace, particularly in recent years, for secured lenders to assign the benefit of standard securities in their favour. It is also perfectly normal for portfolios of such securities to be assigned in bulk; indeed a feature of the credit crunch was the assignation of large numbers of debts and associated securities.

A recent decision from Banff Sheriff Court, Onesavings Bank plc v Burns and another , has highlighted a possible flaw in the method by which lenders seek to enforce a standard security assigned to them as part of a bulk package.

Background

The defenders, a husband and wife, had purchased a house in Turiff in August 2007. The purchase was funded by a mortgage from a now non-existent lender, with the usual associated standard security. So far, so normal. The debt owed by the defenders was subsequently bought and the security assigned on two occasions: first to J P Morgan and the second to the pursuer, Onesavings Bank.

The mortgage in question formed part a mass purchase of debts by Onesavings - again, there was nothing unusual in that. However such mass transfers of securities can create conflicts with the highly prescriptive provisions of the legislation which governs standard securities.

The Issue

In Onesavings, the question before the court was whether the pursuer successfully acquired title to repossess the property. The defenders argued that the Conveyancing and Feudal Reform (Scotland) Act 1970 provided for particular wording to be used when standard securities are assigned. The particular wording under the 1970 Act was wholly absent from the assignation of the defenders’ security to the pursuer.

The Court agreed with the defenders: because the statutory wording for assignation of a standard security had not been used, the assignation of the security was not effective. Whilst the Sheriff emphasised that he had no issue in finding that the defenders were liable to pay the debt due to the pursuer, (i.e. the debt had been successfully assigned) he could not find that the property could be repossessed because the assignation did not provide the appropriate link in title.

What now?

The ripple effect of the decision in Onesavings will be felt by any lender who has purchased debts secured by standard securities. At the very least they will be well advised to review any assignation by which rights in standard securities have been was transferred to them. They may have to examine the position with regard to each of the securities they now hold – this could be thousands in some cases.

The draftsmen who gave life to the 1970 Act most likely did not envisage the bulk buying and assignation of standard securities. However, they did provide a mechanism for the assignation of standard securities which has hitherto been ignored for the most part. It is unclear why this is the case; possibly because, when it is considered, the statutory wording was intended to be used for the assignation of a single standard security and not many. As a result we now have a decision that is problematic for lenders and every debtor will scramble to refer to upon discovering that their standard security has been assigned from one lender to another.

At the time of writing it is understood that the decision in Onesavings is to be appealed. Whatever the final decision it may be the catalyst for the subject of standard securities and their enforcement to feature in the next proposed programme of law reform.