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The decision considers who has legal standing to enforce a debt where the lender retains legal title but has assigned the beneficial interest
The County Court has allowed a borrower's appeal against a Deputy District Judge's (DDJ) decision to strike out his defence to a possession claim, finding that the borrower's arguments concerning the securitisation of the mortgage (and the bank's entitlement to enforce it) raised a real prospect of success: Lloyds Bank plc v Cook [2025] EWCC 43.
The decision will be of interest to financial institutions as it illustrates how securitisation (or transfer pursuant to a covered bond) can create uncertainty over who holds the legal standing to enforce a debt, especially when the lender retains legal title but assigns the beneficial interest (ie the right to receive payments) to a third party. There is tension between two leading Court of Appeal authorities in this area. The decision in Three Rivers DC v Bank of England [1996] QB 292 suggests that where the beneficial interest is assigned, the assignor must either sue in a representative capacity or join the beneficial assignee to the proceedings. However, the decision in Paragon Finance plc v Pender [2005] EWCA Civ 760 supports the view that the legal owner retains the right to enforce the mortgage without joining the assignee, even if the beneficial interest has been transferred.
In the present case, the court found that this legal uncertainty rendered the securitisation issues unsuitable for summary determination and held that the DDJ had erred in striking out this part of the borrower's defence. Consequently, the decision may indicate an area of risk for lenders that have assigned the beneficial interest in mortgage loans, but wish to retain the right to enforce the mortgages. It may be that lenders in this position can resolve the issue by bringing possession actions as an agent, as suggested by the court in this case.
We consider the decision in more detail below.
Background
Between 2005 and 2008, the claimant bank and its predecessor entities entered into a series of mortgage agreements with the defendant borrower. In July 2008, the parties secured the final mortgage agreement with a legal charge over the borrower's residential property. Later, the bank assigned the beneficial interest in the mortgage as part of a covered bond or securitisation, but retained the legal title.
In 2023, the bank initiated possession proceedings because the mortgage term expired and the borrower failed to repay an outstanding balance of £100,000. In response, the borrower filed a defence raising issues concerning the securitisation of the mortgage and the possibility that the bank no longer held enforceable rights under the charge. The bank applied to strike out the defence.
At first instance, the DDJ struck out the defence and granted summary possession.
The borrower appealed.
Decision
The County Court found in favour of the borrower and allowed the appeal.
The key aspects of the decision which will be of interest to financial institutions are set out below.
Unenforceability of the mortgage
The borrower argued that the mortgage was unenforceable under s.26 of the Financial Services and Markets Act 2000 because the assignee of the mortgage might: (i) not have received authorisation from the Financial Conduct Authority; and (ii) have administered the mortgage or entered into a "regulated mortgage contract as a lender".
The court rejected this ground, finding it speculative. There was no evidence to show that the assignee was unregulated or had administered the mortgage. In fact, the bank alone had contacted the borrower about the sums due (or payments). Also, it was difficult to see how the assignee had entered into a regulated mortgage contract with the borrower, as the parties had not legally transferred the mortgage – there was only an equitable assignment. While the court acknowledged that future evidence might support such arguments, it concluded that the borrower was engaging in a fishing expedition for a potential defence. Accordingly, in its view, this ground of appeal disclosed no reasonable grounds for defending the possession proceedings.
Scope of the bank's rights
The borrower also asserted that the bank had lost standing to enforce the debt due to the securitisation of the mortgage. The borrower argued that where a party makes an equitable assignment of a mortgage only, the assignor retains legal title to the debt, but the assignee receives full beneficial ownership.
The court highlighted that the key issue was whether the bank, as the legal owner and equitable assignor of the mortgage, was entitled to bring proceedings (without joining the beneficial assignee) against the borrower and without confirming the capacity in which those proceedings were brought (ie as principal or as agent for the assignee).
The court acknowledged the legal tension on this point, particularly between Three Rivers and Pender. In Three Rivers the court held that an assignor cannot sue in its own name if the assignment is known; it must sue as a trustee for the assignee and disclose its representative capacity, or join the assignee. In contrast, in Pender, the court held that the legal owner retains the right to enforce the mortgage, even after transferring beneficial ownership to a special purpose vehicle. According to Pender, it was not necessary to join the assignee as an additional claimant to the proceedings, and the assignor's failure to describe itself as a trustee did not invalidate the proceedings.
Given this legal uncertainty, the court found that the DDJ wrongly concluded that the defence had no reasonable prospect of success. The court noted that had the case been put before the DDJ properly, with particular reference to Three Rivers, it suspected that the DDJ would have reminded himself of the summary nature of the application before him and erring on the side of caution would have concluded that the issues were not suitable for summary disposal. Accordingly, in its view, this ground of appeal was made out.
Accordingly, the court found in favour of the borrower and allowed the appeal. The matter will now proceed to trial.
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