Rescission of a bridging loan contract- is it possible

[cul8rm8e]

Is it possible to rescind a contract between an individual and Bridging loan lender.

The contract was set for a specific timescale of x months for x amount of money in two stages.

Fist stage was released (approx one third) under conditional valuation report which was acceptable

Second stage release ( final two thirds) did not get released and the borrower was notified that the release was subject to a new condition made by the lender which was NOT within the contract, this would ultimately result in the borrower defaulting (should it have been accepted)on the ability to repay the lender by expiry date of contract due to lack of funds. The second stage release was ALSO subject to a valuation report which was unsatisfactory and which coincidentally happened to be the same report the lender used and accepted as satisfactory to release the first stage.

The second stage funds were ultimately refused on the grounds that the new condition of the lender was not accepted by the borrower and by the date set by the lender for acceptance, this deadline date was well within the original timescale of the contract term.

The lender, although he only provided one third of the funds under the contract has started court proceedings for repossession of land to recover this money along with all fees and interest applied within the contract for the full amount. i,e first stage release: £50k second stage release: £100k fees and interest: £35k (total £185k. The lender is suing for $50k + £35k = £85k + interest from expiry of contract date until paid in full.

[Guest]

Re: Rescission of a bridging loan contract- is it possible

It very much depends on the contents of the contract, and really you should seek specialist legal advice.

Generally speaking the creditor is entitled to the return of the principle advanced if the agreement were to be rescinded.

If theireis a repudiatory breach of contract, Ie the borrower fails to repay the loan then the lender is entitled to recover all sum s due under the contract.
However if the breach is only due to a contractual breach, that is the borrower fails to meet a stipulation of the contract the creditor is only able to reclaim losses uncured due to that breach, any further claim wold be a penalty and unenforceable in common law.

[PlanB]

Re: Rescission of a bridging loan contract- is it possible

The second stage release was ALSO subject to a valuation report which was unsatisfactory and which coincidentally happened to be the same report the lender used and accepted as satisfactory to release the first stage.

The second stage funds were ultimately refused on the grounds that the new condition of the lender was not accepted by the borrower and by the date set by the lender for acceptance, this deadline date was well within the original timescale of the contract term.

The lender, although he only provided one third of the funds under the contract has started court proceedings for repossession of land to recover this money.

If the release of the second stage funds was also conditional on a valuation, and that valuation was unsatisfactory then could the bridging loan company not repossess the land for that reason alone? Why did the project fail the second valuation test? Is this a case of the lender becoming concerned about the project's progress and therefore unwilling to advance further funds on the basis of not wanting to throw good money after bad? I assume if you've got to the court stage then all attempts to renegotiate time scales to allow for weather interruptions etc have also failed.

I admit I know nothing about contract law but I have had a few bridging loans in my time and the contracts are heavily weighted in favour of the lender as with all short-term finance As has been said, you now need a lawyer to get this settled. You'd be better off coming to an arrangement to sell the land yourself than letting it get repossessed especially if you have already invested some of your own money on the build. Bridging loans seldom cover 100% of the cost of a project.

[cul8rm8e]

Re: Rescission of a bridging loan contract- is it possible

What happened before the second release was that the lender,as far as i have been made aware, did not enter something in the contract that he required as a condition and later tried to find a way out of releasing the funds unless the condition was met by the borrower. This was to be a cost of £thousands and was required to be deducted from the second stage before he would release it. The issue here was that if that deduction was made it would effectively put the borrower in a position where they wouldnt have the funds to get to the stage where a second lender would come in and pay off the first lender loan and continue funding to the end of the project. It was a catch 22 situation, if the borrower accepted the reduction then there would be NO second lender as the borrower would need to be at a certain stage before they would come in and take over, the reduction in funding required by the lender would mean the borrower would not get to that stage, therefor, no second lender, no exit route = imminent default on the borrowing from the first lender.

The lender actually required his condition to be accepted and a new loan agreement written up which again the borrower was expected to pay all legal fees for this making the required funding increase even more.

[cul8rm8e]

Re: Rescission of a bridging loan contract- is it possible

the second stage funding was conditioned by a valuation report, but, the second stage release was refused for the reason that the very same valuation that was acceptable for the first stage release was now unacceptable. Effectively he was happy to accept it and released money then decided he was unhappy with it for the second stage, I know it doesnt sound right but this is exactly what happened. The question was asked of the lenders solicitor how this could be the case and the reply was that this is how it is and my client requires the borrower to accept the new condition or no further funding will be released, simple as that.

[PlanB]

Re: Rescission of a bridging loan contract- is it possible

I note you are based in Scotland where contract law seems to be different from that in England and Wales:

http://en.wikipedia.org/wiki/Scots_contract_law

[PlanB]

Re: Rescission of a bridging loan contract- is it possible

I've now traced the full story on another thread. It seems you have an issue with the broker who may have missold you the combined product in the first place, the solicitor who advised you it was ok to sign the contract, and the surveyor who may have undervalued the land. These are the facts as told by you in a post:

I have dealt with a financial adviser who was supposed to put two lenders in place for a small development i was doing by myself.

The adviser sent me all documents with terms for both lenders before i would start handing out any £. Anyway i paid the fee for application to first lender who was funding in two stages to wind and watertight stage. A valuation report was the last thing required by the first lender which he got and was happy so he gave me the first £10k. I got all underbuilding work done and went back for the second stage release only to be refused due to an unsatisfactory valuation report! Yes it was satisfactory for the first stage.

I then found out that my financial adviser who gave me documents to say all was in place was now working for the first lender and there never was finance in place with the second lender, he witheld information from me.

The first lender then decided to add another problem for me saying that i had no exit route to pay him off at wind and watertight stage and this was now the reason for not giving me the second payment. I wounder if it was his new employee(my adviser) who told him i dont have the second lender in place. Oh and BTW he was a very old m8 of the first lender who worked with him for a number of years earlier. its amazing what you find out when you dig into things.

My land was valued at £50k before i went to any lender for funding but after the lender had a valuation done with all the underbuilding complete (16k spent on it to date)it was only worth £40k and the valuation report date was 6 months out of date, i asked for this to be sorted and got a copy of the new report with the correct date BUT signed by someone else. It so happens i was there when the lender and valuer was doing the valuation and the valuer gave the nice lender a lift in his car. i had another independent valuation done and guess what, It was valued at £72k as it stands. RICS say this is ground for negligence, I agree!!!!!! I wonder who was negligent, my two independent valuers or the lenders?

Getting back to the contractual matters. i used a financial adviser and a solicitor who looked over the contract and said everything is fine, i was never given any advice on what the wording in the contract meant from anyone.

it looks like i am now going to court to ry and defend by myself as i have no money for a solicitor. as i write this i have my nice new court writ in front of me which i got through the post today.


Some details f my contract:

1. The loan will be utilized by you for the following purpose :-

Business purposes for the development of 2 dwellings for onward sale or letting and not for occupation by you or your immediate family




Declaration for exemption relating to business (Sections 16B and 189(1) and (2) Consumer Credit Act 1974)

I am entering this agreement wholly or predominantly for the purposes of a business carried on by me or intended to be carried by me. I understand that I will not have the benefit of the protection and remedies that would be available to me under the Consumer Credit Act 1974 if this agreement were a regulated agreement under that Act. You declare that you will not reside in the property at any time during the currency of the loan.

I understand that this declaration does not affect the powers of the court to make an order under section 140B of the Consumer Credit Act 1974 in relation to a credit agreement where it determines that the relationship between the creditor and the debtor is unfair to the debtor.

I am aware that, if I am in any doubt as to the consequences of the agreement not being regulated by the Consumer Credit act 1974 I should seek independent legal advice.

I/we hereby accept the above offer of advance, the terms of which I/we fully understand and accept. I/we understand that any other parties concerned in this transaction are not acting as your agents and are not authorized to vary the terms of this offer in any way. I/we confirm receipt of a copy of this letter, which I have retained.

Please indicate your acceptance of the foregoing by signing and returning the attached copy of this letter.

ONLY SIGN THIS FACILITY LETTER IF YOU WISH TO BE BOUND BY ITS TERMS.

YOUR HOME IS AT RISK IF YOU FAIL TO KEEP UP REPAYMENTS ON A LOAN OR MORTGAGE SECURED UPON IT.

[cul8rm8e]

Re: Rescission of a bridging loan contract- is it possible

PlanB

yes I agree but, it needs to be said that, the lender refused the second stage based on the valuation report, this was the same report that was produced to him by the valuer and was acceptable for the release of the first stage funds. If i can add that this is not hear say, this is in black and white. There is also other documents required as part of the conditions stipulated by the lender that will make it clear what he expected was very clearly not the case. The lender knew exactly what was happening and that will be very clear when, what i and others in the legal profession are calling it, Overwhelming documentation to show he is very much at faults as is the financial adviser.

I dont want to say too much but this goes much further than a legal issue, there are other authorities taking great interest in what has happened, all due to NOT hear say but, what was actually said in Writing.

The plan is to open the can and see whats inside. I cant wait!


I got a feeling the lender may have got wind of all my posts but it dont really matter, i actually hope he does read them so he can prepare for whats coming his way!