Gary Donaldson: Inhibitions and insolvencies can lead to deeds disasters
Essentially, if a seller owes someone money or has been sued by a third party, an inhibition can be taken against them, meaning the seller cannot voluntarily sell the property, transfer ownership or take out any further secured loans, such as a second mortgage, on the property.
Such a check is essential to guard against the risk that the seller may be legally barred or ‘inhibited’, from voluntarily transacting with the property they own. This is not a theoretical, unlikely to materialise, risk; it is real. In 2016/17 there were some 20,000 entries in the RoI, the vast majority relating to inhibitions.
The inhibition itself follows from a court order by a creditor, and can date back as long as five years and even more if the creditor decides to re-register it. The Inhibition Order is not on the house, but on the individual person, and can be a standalone inhibition or part of, say, bankruptcy proceedings. If it has been recorded in the RoI by the creditor, the seller cannot sell the house to avoid them potentially disposing of a major asset and not paying the debt owed in full.
The RoI is maintained by the Keeper of the Registers of Scotland, and as a public record, is open to inspect. The way it works is extremely resourceful; a sale or mortgage which breaches the inhibition can be attacked by the creditor and, in effect, set aside as if it never happened. That is a major risk for a purchaser or a mortgage provider, therefore solicitors need to ensure their due diligence process is robust, and consider utilising a professional search company to carry out a ‘Personal Search’ of the RoI as part of the conveyancing process.
Although the RoI is a public register, searching it involves a high degree of skill and it’s not enough to search against a name and wait for any exact matches. Other more simple problems often arise, for instance, Elizabeth may appear on the title deeds but the person may go by the name of Beth or Liz and it’s one of these names that the creditor used when inhibiting her. Not to mention the many names that have multiple different spellings, Smith or Smyth and the likes. Searching is a skill and the law recognises this.
The onus on searchers is high. They must get the search right and disclose anything that might be relevant so the solicitor can make further enquiries to check that the person named in an inhibition is the same as one of the parties to the transaction. This year, a case in Dunfermline Sheriff Court, held that the duty a searcher owes when checking the RoI extends not just to the party who instructed the search but also extends to the creditor trying to recover the debt. So if the searcher gets it wrong they could find themselves having to reimburse the out-of-pocket creditor.
The best approach is to recognise that the method of searching must allow for imperfections in the information registered, and recognise that personal searching isn’t an exact science. Names are not unique, changes to debtors’ identities may be used to try and reduce the likelihood of debtors being found on the register, and/or a creditor may have very limited information regarding a debtor’s name or address. All the more reason to use a professional search firm when checking the RoI.
Whilst the RoI information is available to access from public registers, Millar & Bryce has purchased data in bulk from central and local government agencies to operate and maintain our own
Personal Search Database – a system of indexing and retrieving personal information, disclosing an exact replica of entries from the official Register of Inhibitions, and the Register of Insolvencies. Also incorporated into our search procedures is additional relevant information gathered from other sources.
Don’t get caught out – do your due diligence and avoid a title deeds disaster.
Gary Donaldson is Head of Product at Millar & Bryce