Assignment as a means of securing lending

"Assignment is used as a means of securing lending, it secures the bank and serves the borrower"

The assignment agreement is increasingly being offered as a means of securing lending instead of a mortgage and is now being adopted more by banks for customer lending. The borrower is facilitated since he offers the property he buys as collateral for the loan and the bank acquires it until the loan is repaid. It is a safe mode of lending, since the borrower no longer has rights over the property he bought, he assigns his rights as a buyer under the sales contract to the bank and the property, whether apartment, house or plot, cannot be disposed of, except by transfer and simultaneously mortgaging it to the bank.

The interest of a borrower is served, since as a buyer is facilitated to buy the property and have possession of it, which he uses and can develop it, without having to grant another property for mortgage, which he may not have. The bank provides him with the money to buy it and acquires his rights, but not his obligations. With the assignment he is not allowed to transfer the property and sell or mortgage it to another bank. The assignment as collateral, although is not required to be in a certain type, is recommended that the bank deposit it in the Land Registry for its own protection, preventing the buyer from disposing of or encumbering the property.

Specific performance of the assignment agreement based on Article 76 of the Law of Contract Cap.149

The Specific Performance Law N.81(I)/2011 contains provisions for the assignment agreement as collateral which is accepted in the Land Registry only if the sale contract concerning it has already been filed. In the event that the buyer does not fulfill the obligations arising from the assignment agreement, the assignee, which is usually a bank, may file an action for specific performance of the contract to which it relates, so that an order of the Court is issued ordering the registration of the property in the name of the buyer and the simultaneous registration of a mortgage on the new title.

The Court of Appeal in its decision issued in C.A.163/2018, dated 6.9.2024, refers to the assignment as collateral and the bank's rights. Specifically, a property buyer entered into an assignment agreement with a bank to secure credit facilities. The buyer assigned in favor of the bank all his rights arising from the sale contract and the vendor became aware of the assignment agreement. Despite their assurance to inform the bank when the separate title to the property would be issued so that it would be transferred to the buyer with a simultaneous mortgage to the bank, the property was transferred to the buyer, who at the same time registered a mortgage in favor of another bank.

The bank did not take care to file the assignment agreement as collateral in the Land Registry, but was informed about how the vendor and buyer acted. To this end, it filed a lawsuit against both of them claiming various remedies including specific performance of the assignment agreement based on Article 76 of the Law of Contract, Cap.149 and registration of the property in its name or alternatively, damages for the value of the property.

The trial Court held that both of them breached the express terms of the assignment agreement and the covenants they entered into. Although the buyer had assigned his right to register the property in his name in favor of the bank, yet without the knowledge of the bank the property was transferred to the buyer, who at the same time mortgaged it to another bank for a loan he received. Consequently, the Court issued a judgment in favor of the bank, for the sum of €750.000 as damages, being a sufficient remedy equal to the value of the property at the time of the judgment, taking into account the practical difficulties that would arise from cancelling the registration of the property.?

Decision of the Court of Appeal

The Court of Appeal in its judgment approved the decision of the First Instance Court and emphasized that the validity of the assignment agreement was not subject to its deposition at the Land Registry, but this was valid from the moment the buyer assigned his rights absolutely to the bank. It affirmed the right and standing of the bank as assignee to file an action to assert its rights without the assignor’s approval or consent to its rights under the assignment, including the transfer of the property in its name.