UNCERTAINTY BY THIRD PARTIES IN LENDING MONEY TO CO-OWNERS.
The effect of overreaching has proven to be a useful and protective tool that third parties such as banks and lenders may safely rely on when the lend money on co-owned land. Overreaching of the rights of equitable owners according to s 27 (2) LPA 1295 when there are at least two or more trustees of the land. When there is only one legal owner overreaching won’t occur, however when in the conveyance the equitable owners are expressed ( Goodman v Gallant 1986) then the third party will know about their existence and a possible conflict of interests that may arise from their occupation of the house since overreaching will not occur and they may possibly bind the third party either by virtue of having an overriding interest and thus binding the third party regardless of the fact that the party had no notice of their interest (LRA 2002) or when the land in unregistered through the doctrine of notice. Since the bank will know of their existence it may seek their consent before it grants the mortgage loan to the legal owner. Things however are not that easy for banks when the equitable owners are not expressed in the conveyance, then there is no way of finding out for a bank or a purchaser if there are any equitable owners in existence. In such a case it is said that the trust may have arisen informally either through an express agreement between the legal owner/proprietor to hold the land in trust for himself and the other party ( Bull v Bull 1995) or a contribution of money towards the acquisition of the property. The bank won’t ever know if there is such an arrangement unless it is told so, thus it won’t seek to obtain their consent before the purchase of the house. When their equitable interest arises informally then it will bind the bank which will actually not be able to enforce its security against the equitable owner who will have priority over the mortgage. Those problems usually arise in cases where there is a husband and wife or a proprietor where his lover claims equitable ownership in the land, so that there is only one trustee/legal owner ( for example the husband) and overreaching cannot occur since the bank may not obtain good title to the land. In order to beat an informal equitable owner the bank must make sure that it will not give out any loan on the land unless it has obtained the consent of all existing or future equitable owners. Notably an equitable owner who knows that the legal owners will take out a mortgage but does not impliedly or expressly consent does not lose his priority over the land the mortgagee lender.
However when the equitable owner participates, or when the equitable owner knows that without the mortgage the land cannot be purchased so that the land was purchased by virtue of the mortgage and since he did nothing to stop it the equitable owners is bound by it.
Uncertainty over equity ownership
Uncertainty for third parties such as lenders and bankers dealing with the land may not only arise in the form of an informal trust but also when they lend money to joint legal owners. In such a case the maxim ” equity follows the law ” means that both legal joint tenants are presumed to hold the land jointly in equity. This is important for a bank or a purchaser since if it lends money on the land it needs to be certain that in the absence of a declaration of the equitable ownership, they hold in equity whatever they hold in law, that is 50/50 jointly. However in the recent case of stringer the Court decided that equity does not necessarily follow the law. In that case both son and mother being joint legal tenants mortgages their house for a loan but it transpired that the son had unduly influenced the mother to sing the mortgage. Therefore the legal mortgage was void since there were two join legal tenants being joint their consent of both was required. It was also found that the son had no equity in the land, holding it only to enable a mortgage to be made on the land. Therefore the bank was left with nothing as the son had no equity in the land.
