What legal issues can arise after obtaining a mortgage in the UK?

When it comes to mortgages, it is usual to talk about the issues that can arise at the early stage, which isthe application for finance itself. You will find many articles on our blog that explain the various processes in an accessible way and help to reduce the risk of complications.** In this article, however, we will focus on legal issues that can occur once you have obtained a mortgage.**

Legal issues

When you think of the issues that can occur once you have obtained financing, you most likely have in minda rise in interest rates, a fall in property values or conflicts between co-borrowers. You are not wrong - some of those complications are among the most common and you should definitely be aware of the risk of them occurring. However, in addition to such difficulties, obstacles with a legal background can also be encountered. These mainly concern formal matters such as valuation and verification of the building’s condition or ownership issues. Below, we will describe some such legal issues and advise you on what to do in such situations.

Solicitor’s mistake in checking legal documentation

When buying property in the UK, one important step isconveyancing, which is the use of a solicitor, known as a solicitor or conveyancer, to transfer ownership of the property from one person to another. During this process, the solicitor checks thetitle deeds. At this stage, the solicitor may make some mistakes. Of course, by choosing a more experienced, and most likely more expensive, solicitor, you can minimise the risk of such oversights.

When working on title deeds, the Solicitor checks, among other things:

• Who formally owns the plot of land;

• What are its boundaries;

• Whether the property has any legal restrictions that may affect its use.

If the person you hire inaccurately investigates these issues, it can result in some serious legal issues.

The first example may be the failure to notice certain restrictions. Various restrictions may be written in the property deed, including, for example, a prohibition on outbuildings or fences, running a business in the house, or keeping animals on the plot. If such provisions go undetected, you, as the subsequent owner, may suffer the consequences. For example, if you start erecting a fence, the person in whose favour such a restriction has been imposed (this could be a neighbour, a developer or a housing association) may demand that you stop building, restore the property to its original state or,** in the worst case scenario, if you ignore the summons, sue you.**

Another example of a potential error is the failure to detect a right of way. This is a provision that allows third parties legal access to your land. This could range from allowing a neighbour to pass through your land to allowing water companies to work under your land. The situation is similar in the case of land claims - you may suddenly find that there are people besides you who have rights to part of your property. As a result of not knowing about such a record, you may lose part of the property.

Each of these three examples is clear negligence on the part of the lawyer. What then should you do in a situation where such negligence occurs? If you manage to detect the problem before the purchase contract is signed, definitely hold off. Explain the issue to the end and ensure that the Title deeds are amended. If you fail to do so, you will have to decide between coming to terms with such conditions or finding another property.** It will be much worse if the contract has already been signed**. If this situation happens to you, you will unfortunately have to claim compensation from the solicitor. Make a formal complaint and, if this does not work, refer the matter to the Legal Ombudsman (this is the equivalent of the Financial Ombudsman, only involving lawyers).

Disputes with the landlord

If you have taken out a mortgage for a leasehold property, this means that you own the right to occupy the property but you do not own the buiding or the land it’s build on. This arrangement, although usually cheaper,** involves some risk of various, usually minor, conflicts. **Although many issues are enshrined in law, in practice freeholders may try to avoid their obligations or delay certain processes.

A very typical issue with leasehold, are the conflicts related to the additional charges that tenants have to pay. These are Ground Rent and Service charges, i.e. the costs that the Freeholder incurs for the maintenance of the common area, cleaning, rubbish etc. Ground Rent is not a high cost, but it can increase over the years - this should be written in the lease and the tenant should definitely know about it. However, the problem of this fee was completely solved in 2022. A reform was then introduced whereby for all leasehold agreements entered into after 30 June 2022, Ground Rent is to be £0 or a “peppercorn” amount. However, this law is not retroactive - contracts entered into before this date are not regulated.

As for Service Charges, they should be transparently presented to the leaseholder. It sometimes happens that the true cost estimate is concealed by the freeholder and the leaseholder pays a larger sum than it should, inadequate for the work carried out. Such charges cannot be a means of income for the freeholder - they should only be managed by the freeholder. If such issues occur, the resident has several options. A good option would be a formal complaint to the building manager. If such does not work, a referral to theFirst Tier Tribunal (Property Chamber) can be made or consideration can be given to using the “Right to Manage” law, whereby management over the building can be taken over without the owner’s consent.

Succession issues and community of property

This type of issue only arises in cases where the mortgage has been taken out by two or more people (Joint mortgage). A very important step when taking out a joint mortgage should be for all parties to sign what is known as a Declaration of Trusts, an agreement which sets out exactly all the shares, financial contributions and rights in the event of separation or death. We realise that such topics are difficult and reluctant, but to avoid big problems, a formal agreement should be in place to help at a critical time.

If such an agreement has not been signed, co-borrowers are exposed to several potential legal issues that may arise in the future.

Death of one of the co-borrowers

Where the Declaration of Trusts has not been signed and the form of co-ownership is Tenants in Common, several conflicts may arise due to the disorderly division of rights to the property. It is important to remember that **the deceased person’s right to the property transfers to his or her heirs **- the co-owner is not protected (if not mentioned in the will). Such a turn of events may be the beginning of disputes over the division of the estate or the subsequent fate of the property. The situation is different with the Joint Tenants form, which grants a co-borrower a so-called Right of Survivorship, a right that allows the other owner to take the other part of the property regardless of the deceased person’s will.Death of one co-borrower

Divorce or separation

As with the sudden death of a co-borrower, some events cannot be foreseen when taking out a mortgage. The same is true of a divorce or separation of owners. Such situations are associated with very negative emotions on both sides, and a joint credit agreement does not help the problem at all. Even in a divorce,** the couple is jointly responsible for the mortgage and both people have to pay the instalments,** regardless of who lives in the house. If there are delays, or instalments are not paid at all, the bank will pursue both owners. There are several possible ways out of this difficult situation - we have detailed them in the article “UK Mortgage and Divorce”.

Summary

Legal issues with a mortgage can be challenging. They are certainly associated with enormous stress and several sleepless nights. Fortunately, some of the possible problems, such as a wrong analysis of property deeds or conflicts over inheritance, can be prevented if you act quickly enough. Remember that even if one of these problems happens to you, there is a way out of every situation and there are relevant bodies such as the Legal Ombudsman or Citizens Advice that will be able to help you.