When a borrower fails to repay a secured loan or falls into arrears various remedies are available to the lender. Repossession attempts, usually for the purpose of sale with vacant possession, are now common. And it is clear that the number of attempted repossessions will grow.
But lenders must be aware that the law on mortgages balances the interests of lenders and borrowers. Lenders seeking repossession must navigate a course through principles of common law, equity, statute law and court rules. Government policy is focussed on keeping borrowers in their homes where possible.
The development of mortgage law in Ireland
For centuries mortgages were used mainly to raise capital for commercial purposes. Later in the 20th century mortgages for the purchase of residential property became normal. Originally a mortgage involved the conveyance of the property from the borrower to the lender with a provision for redemption i.e. the re-conveyance back to the borrower when the debt was repaid. If a borrower missed the repayment deadline they would lose the property even if they had paid a substantial part of the loan.
Over time those strict rules were tempered by the introduction of equitable principles. This allowed borrowers to redeem the property on payment of the loan and interest even when the legal date of redemption had passed. The concept of a borrower’s ‘equity’ in a property is based on these principles.
Equitable principles and discretionary remedies now take account of the conduct of the parties. Deadlines may be applied more flexibly and repossession orders may be ‘stayed’ for various reasons. Transactions can sometimes be set aside because of the unequal bargaining positions of lender and borrower.
More recent developments
The Government’s paramount objective is to keep borrowers in their homes wherever feasible; repossession of private residences is to be an option of last resort. The statutory and regulatory frameworks have already been strengthened to achieve this objective.
Firstly, the Central Bank’s Code of Conduct on Mortgage Arrears (CCMA) contains a structured framework which lenders must follow when dealing with mortgage arrears. The Central Bank has also set targets for achieving sustainable solutions and is stepping up its monitoring and enforcement activities. Compliance with the CCMA is a necessary condition for lenders seeking to obtain court orders for repossession of primary residences.
The Personal Insolvency Act, 2012 has modernised the State’s insolvency laws. It has introduced new debt resolution mechanisms to help mortgage-holders and others with unsustainable debt to reach sustainable agreements with their creditors. In this context, the Act draws a distinction between secured and unsecured debt. The new mechanisms are:
1. a Debt Relief Notice (DRN) to allow for the write-off of debt up to €20,000 subject to a 3 year supervision period;
2. a Debt Settlement Arrangement (DSA) for the agreed settlement of unsecured debt, with no limit involved, normally over 5 years; and
3. a Personal Insolvency Arrangement (PIA) for the agreed settlement of secured debt up to €3 million (though this can be increased) and unsecured debt with no limit involved, normally over 6 years.
Before 2009 lenders had the power to sell mortgaged property without court intervention where the mortgage was made by deed. But where they didn’t have vacant possession it would be hard to get the best price reasonably obtainable. The purpose of getting possession was to sell the property with vacant possession. Now a lender can’t sell a property without a court order if it does not have the borrower’s consent. However, a lender can apply to the District Court for a possession order if the borrower has abandoned the property and urgent steps are required to prevent deterioration or damage.
An alternative remedy used more commonly with commercial premises, is the appointment of a receiver. Appointing a receiver can protect the value of the security by improving management of the business in cases where the mortgaged property is a hotel or licensed premises or, in the case of ‘buy-to-let’ (BTL) properties which have been leased and are occupied, allow the receipt of rents from the tenants and thereby service the loan.
Lender repossession activity
During the third quarter of 2013 1,830 private dwelling repossession cases were started. 361 cases were concluded in 89 of which the courts granted an order for repossession or sale of the property. There were 1,002 such properties in the possession of lenders at the beginning of the quarter.
A total of 209 properties were taken into possession by lenders during the quarter, of which 76 were repossessed on foot of a court order. The remaining 133 were voluntarily surrendered or abandoned. During the quarter 158 properties were disposed of. As a result, lenders were in possession of 1,050 private dwelling properties at end-September 2013.
There were 502 BTL properties in the possession of lenders at the beginning of Q3 2013. A total of 62 properties were taken into possession by lenders during the quarter, of which 31 were repossessed on foot of a court order, while the remaining 31 were voluntarily surrendered or abandoned. During the quarter 47 properties were disposed of. As a result lenders were in possession of 516 BTL properties at end-September 2013.
The Courts Service has provided a sample of 195 cases across 20 Circuit Court jurisdictions where Possession Orders were granted. Of the 195 cases, 151 properties were private residences, 16 were BTL. The average time from the issue of a Civil Bill to the grant of a Possession Order was 517 days. The average time taken from the grant of a Possession Order to the grant of an Execution Order was 262 days.
Successful repossession attempts are increasing. But lenders and borrowers need to be properly advised before taking or defending an action. They must manage the relationship and adhere strictly not just to the Codes of Practice but to the equitable principles of law developed to balance the interests of lenders and borrowers.
This publication is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Leman Solicitors 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.