With daily news coverage of the ongoing mortgage arrears crisis and of the Brian O’Donnell case, borrowers in arrears on mortgage payments are acutely aware that their lending bank may take their family home. It’s a real concern. The number of successful possession applications before the Courts has increased dramatically in the last 18 months. But a bank must overcome several obstacles before they can take possession.
Usually the bank will seek possession voluntarily. But that’s rarely given so the only way the bank can take possession is with an order of the Court. The bank’s right to possess your home does not come from the mortgage itself. It comes from the Land Conveyancing and Law Reform Act, 2009 (as amended). Although a bank is entitled to sell the property with the borrower in situ it makes little commercial sense to do so. A higher price will be achieved with vacant possession.
An application for possession can be made in the High Court or in the Circuit Court depending on the specific circumstances of the case. It looks for an order for possession and usually also an order for sale. In the Circuit Court no order for possession or sale will be made on the day it is heard unless the defendant consents and that is unusual. When proceedings are brought in the High Court the matter is dealt with firstly by the Master of the High Court who must satisfy himself that all of the bank’s and borrower’s paperwork is in order before the matter can be determined by a judge.
Of course it is open to any defendant to challenge the possession application and that is done by filing an affidavit setting out the basis for the defence. If the Court is satisfied that there is a genuine defence then the case will be transferred to a full plenary hearing which will require the exchange of written pleadings and the presentation of oral evidence. But if at the preliminary stage the defendant has not raised a genuine defence then the Court can grant an order for possession and sale without the need for a full hearing.
Several borrowers have sought to defend possession proceedings. These have become the focus of intense media and academic interest. Start Mortgages Limited v Gunn in 2011 is a very well-known and well documented case which does not need to be examined here. The effect of the case was that many homeowners who took out mortgages before 1 December 2009 but had not defaulted until after that date could not face the possibility of a possession order. Instead the bank had to get a well charging order and order for sale using the complicated Court sale procedure rather than conducting the sale out of Court on foot of an order. That decision led to a great deal of confusion and was ultimately reversed by the Land and Conveyancing Law Reform Act, 2013. However the decision continues to apply to proceedings which were issued before the coming into force of the Act on 24 July 2013.
Other parties have sought to rely on the Code of Conduct on Mortgage Arrears to defend possession proceedings. The Code requires banks to facilitate negotiations with borrowers in arrears before resorting to litigation. It requires the bank to do all of the following:
- provide the borrower with information about his arrears and the manner in which the lender intends to handle them;
- make every reasonable effort to offer the borrower an alternative repayment arrangement;
- provide the borrower with forms necessary to apply for State support; and
- actively encourage the borrower to engage with it about arrears.
The legal status and effect of the Code is unclear. A bank is still required in an application for possession to prove that it has complied with the Code. Failure to do so may defeat the application. A borrower will lose the protection of the Code if he is properly classified by the lender as being a non-cooperating borrower. Therefore it is essential for borrowers to communicate with the bank from the moment they anticipate falling into arrears.
The current legal position in respect of the Code is probably best set out in the case of Ryan v Danske Bank. There the Court held that where the bank was seeking a discretionary remedy the Court could refuse the relief sought if the bank had failed to comply with the Code. It held however that when the bank was seeking a remedy on foot of a contract e.g. a mortgage that is not a discretionary remedy and it didn’t matter that the bank did not comply with the Code.
In reviewing whether or not the bank has a right to seek possession of a family home the borrower and his legal adviser need to consider several matters:
- has the bank actually acquired a right to possession under the terms of the mortgage? For example, has there been an event of default?
- has the bank followed the correct procedure under the mortgage for seeking possession? For example, if the mortgage requires certain notice to be given before seeking possession, was the notice given?
- has the bank complied with the provisions of the Family Home Protection Act?
If yes, the bank can take your home and more and more banks are doing just that. As a borrower you need to know your options. First ensure that you communicate with your lending bank. Keep a detailed record of all mortgage documents, correspondence and communications with your bank. You are entitled under the Data Protection Acts to get a copy of your loan file held by the bank and it costs just €6.35. Once armed with your complete file seek appropriate legal advice as soon as you can. All too often borrowers seek advice when it is far too late for anything practical to be done.
Contact Ronan McGoldrick for more information.
This publication is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Ogier Leman for any action taken or not taken in reliance on the information set out in this publication. Professional or legal advice should be obtained before taking or refraining from any action as a result of the contents of this publication. Any and all information is subject to change.