Details on loan application form as a source of constructive notice

A borrower’s replies to questions on a lender’s application form that are inconsistent with other knowledge obtained by the lender can be a source of constructive knowledge. In such a case, the lender should make such further inspection as is reasonably necessary. Otherwise it is subject to any equitable interest that such further enquiries would have revealed.

In Kingsnorth Finance Co Ltd v Tizard ([1986] 1 WLR 783) the matrimonial home was in Mr Tizard’s name but the wife had a 50% equitable interest in it. When the marriage broke down she moved out of the home. She returned each day to look after the children and stayed the night if her husband was away. Mr Tizard applied for a loan. In the application form he stated he was single. The valuer who visited the property on behalf of the lender noted in his report to the lender that the occupants were Mr Tizard and the two children. He knew that the couple were separated and that Mrs Tizard lived nearby but did not note this in his report. The loan was made and was secured by a mortgage on the matrimonial home. Mr Tizard did not keep up with the repayments and the lender brought proceedings seeking possession or an order for sale and directions as to how the sale proceeds should be distributed.

It was held that the lender’s mortgage was subject to the wife’s equitable interest. She was in occupation even though she did not live at the matrimonial home all the time. The discrepency between the statement on the application form that the lender was single and his disclosure to the valuer that he was married put the lenders on notice. The same could be said of the presence of the son and daughter. The lender should have made further inquiries. It did not do so. Since it could not show that, given its knowledge, no further inspection was reasonably necessary it was subject to Mrs Tizard’s equitable interest.

The judgment is interesting for its practical guidance as to the sort of enquiries a purchaser or lender should make to avoid being fixed with constructive notice of unwritten equitable interests.

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