Transferring a loan by legal assignment
Transferring a loan by legal assignment

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

  • Transferring a loan by legal assignment
  • Requirements for a valid legal assignment
  • Differences between legal and equitable assignments
  • Advantages of legal assignment
  • Disadvantages of legal assignment
  • Requests for confirmations
  • Other issues to consider

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 and a discussion of some key issues, 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 therefore either:

  1. statutory—often referred to as 'legal' assignments as they have an effect equivalent to a legal transfer, or

  2. equitable (see Practice Note: Transferring a loan by equitable assignment)

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

For key cases on assignment, see Practice Note: Assignment—key cases.

Requirements for a valid legal assignment

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