9 Notice of assignment

In most large scale financing transactions notice to the underlying debtors is not given by the assignor of the chose in action. This means that the assignment until notice is given to the underlying debtors can only ever be an equitable assignment.
There are good reasons for not providing notice to the underlying debtors (such as mortgage loan borrowers). The first reasons is that it would be very time consuming.
The second is that it plainly is not good for business. For example, if the Commonwealth Bank notified its 15,000 customers every time it executed one of its securitisation transactions many of its customers would wonder what was happening

Question
If no notice is given then what is the status of the assignment?
- EQUITABLE ? LEGAL ?
What is the consequence of that ?

Answer

The main risk, if notice is not given, is that the debtor/mortgager might continue to make payments to the assignor/originator, and the debtor/mortgagor cannot be obliged to pay again in the event the assignor/originator fails to remit those payments to the assignee. This problem doesn’t arise in securitisation transactions as the originator will undertake to transfer payments to the securitisation issuer following the assignment.
Another problem that arises due to the failure to notify the borrower of the assignment is that it may permit the borrower to set off claims that he or she has against the originator, against obligations he or she owes to the originator. Under general law, an assignee (legal or equitable) takes ‘subject to equities’. Remember s 12

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