Transferring a loan by equitable assignment

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Transferring a loan by equitable assignment
  • How equitable assignments arise
  • Differences between legal and equitable assignments
  • Advantages of equitable assignment
  • Equitable assignment can be used to assign part of a loan
  • Confidentiality
  • Disadvantages of equitable assignment
  • New lender takes double credit risk
  • Assignment is subject to equities
  • Priorities
  • More...

Transferring a loan by equitable assignment

Assignment is a means by which a lender can transfer its interest in a loan to another lender.

For an overview of the reasons why a lender might generally want to transfer a loan, see Practice Note: Key issues in loan transfers.

A loan (which is a debt) is a chose in action. A chose in action is something which is recoverable by legal action (as opposed to something which is physically possessed). As a basic principle, choses in action cannot be assigned at common law.

Assignments of choses in action are either:

  1. statutory—often referred to as 'legal' assignments because they have an equivalent effect to legal assignments (see Practice Note: Transferring a loan by legal assignment), or

  2. equitable

Under English law, an assignment is a transfer of rights; it does not transfer obligations (in contrast to a novation—see Practice Note: Transferring a loan by novation).

How equitable assignments arise

If one or more of the requirements for a statutory (ie legal) assignment is not fulfilled, the assignment will be equitable.

To take effect at law an assignment must be:

  1. absolute ie not conditional on any event or circumstance

  2. in writing and signed by the assigning lender, and

  3. notified to 'any person from whom the assignor would have been able to claim such debt' ie the borrower and any guarantors

For a loan transfer to be

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