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Europe Mortgage Co Ltd v. GA Property Services Ltd (1999) 50EG77
In April 1991 the defendants negligently overvalued a large house for the plaintiff mortgagee at £1.65m in connection with a proposed loan of £1m to the prospective borrower. The mortgage was executed in June 1991 and the plaintiff disposed of its interest when, in July 1997, it sold its mortgage book to the subsidiary of a building society at a discount against the book value of the loans. The discount included £530,000 attributable to the loan on the subject property and therefore because of this the plaintiff suffered a loss of £456,703.83, the difference between the amount received from the borrower and on the sale of the mortgage. The plaintiff sought to recover his loss as damages from the defendant valuer on the basis of negligence.
The judge refused to award damages to the lender. Although the property had been overvalued by £550,000 in 1991 and the plaintiff would not have entered the transaction but for the overvaluation, nevertheless, by the time the property was sold in 1997 it had a value of at least £1 m which exceeded the amount still outstanding on the loan. Thus the property could have been sold at that time without loss to the plaintiff. Consequently the loss suffered by the plaintiff was not one for which the defendant was responsible.
Mortgage corporation v Lambert (1999) 42 EG 138
This case involved the court in the difficult task of applying the House of Lords ruling in Nykredit Mortgage Bank Plc v. Edward Erdman Group Ltd (No. 2) (1997) 1 WLR 1627. The difficulty in the ruling is that it requires the court, in assessing damages for a negligent over valuation for mortgage purposes, to ascribe a value to the borrower's covenant to repay his mortgage.
In this case the defendant valuers valued a property on 30 April 1990 at £250,000. The plaintiffs lent £176,631 on 25 June 1996 secured on the property by way of a non-status loan, relying on the valuation. The plaintiff claimed that at the time the loan was made the true value of the property was only £150,000. The owners made no payments at all on the mortgage until October 1990 and remained in arrears on the mortgage throughout its history. In March 1996 the plaintiffs repossessed the property and sold it in August 1996 for £100,000.
The defendants denied negligence and also alleged that the plaintiff's claim was statute barred by the Limitation Act 1980 on the ground that the plaintiff's loss first occurred prior to 15 October 1990, as before this date the borrower's covenant was valueless. Furthermore the plaintiff could not rely on S14A of the Limitation Act 1980 as they had received valuation reports prior to the three years ending with the writ which should have caused them to question the defendant's valuation. This was a trial of the preliminary issue of whether the claims were statute barred.
After examination of the facts concerning the history of the loan the judge concluded that the plaintiff's loss first occurred more than six years prior to the issue of the writ. This was because, following the Nykredit case, from the date of the borrower's first default until 4 October 1990 (the date of the borrower's first payment) the borrower's covenant to repay was valueless. After that time if it had any value at all it was not sufficient to make up the shortfall between the amount lent and the true value of the property.
The next issue was whether S14A in particular S14 (10), Limitation Act, applied to extend the limitation period. The plaintiff had received three estimates of the value of the property from debt collectors as part of its attempts to extract payment from the borrowers. However, the judge considered that as these reports were not prepared by expert valuers, nor for the purpose of valuation, they could not be said to amount to material that ought by itself to have caused the plaintiff to question the original valuation by the defendant.
Thus the plaintiff's action was not statute barred.