Recent Developments in the Enforcement of Residential Mortgages in Ireland, April 2014

11-04-2014

Author: Colin Monaghan, Richard Willis, Claire McGrade, Rob Cain, Cormac Kissane, Orla O’Connor



The Land and Conveyancing Law and Reform Act 2013 (the “2013 Act”) and the revisions to the Code of Conduct on Mortgage Arrears (the “Code”) in July 2013 are designed to facilitate the repossession of residential properties by lenders, and it was anticipated that these developments would increase the rate of orders for possession granted by the Irish Courts. From the most recent figures released by the Central Bank on 4 March 2014, however, the court traffic on repossession cases appears to have remained relatively stable. The total number of properties taken into possession by lenders during the first quarter of 2013 (pre-the revised Code and 2013 Act) was 166 (of which 49 were repossessed on foot of a Court Order), whereas 168 were repossessed in the fourth quarter of 2013 (of which 63 were repossessed on foot of a Court Order).

Background

Prior to the introduction of the 2013 Act, which rectified the legislative loophole identified in Start Mortgages Limited & Others v Gunn & Others, the rate of possession orders being made by the Irish Courts were not as high as might have been expected. It is likely that the uncertainty caused by the provisions of the Land and Conveyancing Law Reform Act 2009 (the “2009 Act”) in terms of the ability of mortgagees to seek orders for possession on foot of security created prior to 1 December 2009 greatly contributed to these low figures. When the 2009 Act came into force on 1 December 2009, the existing law governing repossessions was repealed and the procedural right of a lender to seek an order for possession of registered land where the mortgage was created prior to 1 December 2009 was inadvertently removed, as the equivalent provisions under the 2009 Act only applied to mortgages created after 1 December 2009.

This legislative loophole was identified in Start Mortgages in considering the effect of the repeal of Section 62(7) of the Registration of Title Act 1964 (the “1964 Act”), being a statutory power to use a summary court process to obtain possession of registered land when repayment of secured monies became due. The High Court concluded that, in the case of mortgages created before 1 December 2009, the procedural right for a lender to seek an order for possession of registered land by way of summary proceedings had been removed unless the principal amount had become due prior to 1 December 2009. As a result of the repeal of Section 62(7), this meant that residential mortgage lenders were left with no option but to consider appointing a receiver to a family home in circumstances where the principal amount had not become due prior to 1 December 2009. Traditionally, this enforcement route would rarely have been exercised. Mortgagees were also beginning to consider alternative enforcement options, such as seeking well-charging orders and court sales, each lengthy and expensive processes.

The 2013 Act, which became law on 31 July 2013, finally addressed the unintended consequences arising from the 2009 Act and confirmed that the relevant provisions of the 1964 Act, as well as those of the provisions of the Conveyancing Act 1881 (which provides for, among other things, a statutory power of sale), which had been repealed and/or amended by the 2009 Act, will continue to apply to mortgages created prior to 1 December 2009.

Court Procedure

Section 3 of the 2013 Act provides that all applications for possession of principal private residences have to be brought in the Circuit Court, which brings mortgages created prior to 1 December 2009 into line with similar mortgages created on or after that date. The court procedure to be adopted in respect of repossession proceedings can therefore be summarised as follows:

Pre-1 December 2009 Mortgages
A Principal Private Residence Mortgage Proceedings must be commenced in the Circuit CourtSection 3 of the 2013 Act applies
B Non-Principal Private Residence Mortgage Proceedings can be commenced in the High Court or Circuit CourtSection 62(7) of the 1964 Act applies
Post-1 December 2009 Mortgages
A Housing Loan Mortgage Proceedings must be commenced in the Circuit CourtSection 101(5) of the 2009 Act applies
B Non-Housing Loan Mortgage Proceedings can be commenced in the High Court or Circuit CourtSection 101(5) of the 2009 Act applies

 

Recent Case-law

Recent case-law relating to orders for possession seem to indicate that the Courts are beginning to move away from a historically sympathetic approach towards homeowners, to a focus on the actions of banks and their compliance with the various applicable regulatory codes (including the mortgage arrears resolution process (“MARP”) as provided for under the revised Code) and the terms of the mortgage document. It appears that the Courts will strictly enforce the procedural steps which clauses in loan agreements/mortgages require of the lending institution. It would also appear that, if it can be established that the lender has complied with the regulatory procedures, and also the terms of the mortgage document, and the borrower is not co-operating, then there should be increased scope for the lender to secure possession orders.

In Stepstone Mortgage Funding Limited v Peter Fitzell and John Fitzell Ms Justice Laffoy concluded that breach of the Code would prevent a bank from recovering possession of a principal private residence. In that case, the Court considered the obligation on a lender pursuant to the Code to make an effort to maintain contact with a borrower and to put legal proceedings for possession on hold for as long as a borrower adheres to the terms of any agreed alternative repayment arrangement. This line of reasoning was followed in Irish Life & Permanent (Bank) v Duff & Another, where Mr Justice Hogan refused to grant the plaintiff bank an order for possession on the grounds that it had failed to comply with the Code. Mr Justice Hogan held that the bank had failed to make “every reasonable effort” to agree an alternative repayment arrangement with the defendants.

In addition, in the recent case of Irish Bank Resolution Corporation v Hayes & Another, the President of the High Court Mr Justice Kearns, examined the terms of the mortgage upon which the lender relied and concluded that, in circumstances where the principal monies were deemed to become due as soon as there was a default in making one periodic payment and without the necessity of any demand, which in this case occurred prior to 1 December 2009, the lender was entitled to seek an order for possession on foot of Section 62(7) of the 1964 Act. In Ulster Bank Limited v McDonnell & Another, Mr Justice Kearns again focused on the specific terms of the mortgage document in an appeal from an order of the Circuit Court dated 18 May 2012, where an order for possession of the borrowers’ property was refused in circumstances where the lender had not made a demand for the repayment before 1 December 2009 (relying on Start Mortgages). In the High Court, Kearns P. granted an appeal on the grounds that the terms of the mortgage entitled the lender to seek an order for possession under Section 62(7) as soon as there was a default in making one periodic payment, which again occurred prior to 1 December 2009, and without the requirement for a demand.

Conclusion

It is worth noting that accounts in arrears of over 90 days at the end-December 2013 had decreased by 2.3% for principal dwelling houses, being the first decline in the number of accounts since September 2009. This is likely to be a result of the new targets introduced by the Central Bank for the resolution of distressed mortgages in arrears for more than 90 days, with at least 15% to be resolved by the end of 2013 and 35% by the end of June 2014.

However, the decline in the overall number of mortgage accounts in arrears, masks continuing increases in very long-term arrears. While the number of accounts in arrears between 90 and 720 days declined by 4,017 over the fourth quarter of 2013 for PDHs, accounts in arrears of over 720 days increased by 1,755. It is likely that this is impacting the level of repossession cases being initiated by lenders so that, while court traffic does not appear to be increasing as expected, it is not decreasing.

It may be that it is too soon to fully appreciate the impact of the changes brought in on foot of the revised Code and the 2013 Act in terms of court traffic, and it will be important to monitor figures as they are released from the Central Bank over the course of 2014.

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