There has been a lot of publicity about the recent memorandum of understanding between the Troika and the Government which requires the Irish authorities to “introduce legislation remedying the issues identified by case law in the 2009 Land and Conveyancing Law Reform Act so as to remove unintended constraints on banks to realise the value of loan collateral under certain circumstances”. Basically, legislation is to be introduced to rectify a flaw in the legislation governing property repossessions. This might lead some people to believe that the Troika is trying to facilitate and increase repossessions at a time when large numbers of the Irish population are in mortgage arrears and are fearful of losing their homes. A quick review of the basis for this latest agreement should help to clarify the position.
In July 2011, Justice Dunne in the High Court gave judgment on four cases which challenged possession proceedings brought by different Irish lending institutions. The Banks in each case sought to bring possession proceedings on foot of Section 62(7) of the Registration of Title Act, 1964 which relates to mortgaged registered land only. (Land is “registered” where title to the property has been registered in the Land Registry as opposed to the Registry of Deeds and the property is identifiable by a folio number). However, Section 62(7) was repealed by the Land and Conveyancing Law Reform Act, 2009 which came into effect on the 1st December 2009. It was argued by the Defendants that after the 1st December 2009, the banks did not have the right to bring possession proceedings in respect of registered land which had been mortgaged before the 1st December 2009.
Justice Dunne held that the lending institutions were not entitled to bring possession proceedings where the mortgage was created before the 1st December 2009 but the entitlement to seek possession arose after the 1st December 2009. This entitlement arises once a formal demand seeking repayment of the principal amount due is served. The formal demand letter must either demand repayment of the entire sum or show the entire sum had become properly due.
The practical implications of Judge Dunne’s decision is that any proceedings in relation to registered land which was mortgaged before the 1st December 2009 will be struck out if those proceedings are instituted after the 1st December 2009 and if no formal demand was delivered before the 1st December 2009 as there is no statutory basis for those proceedings.
The judgment caused great outcry among lending institutions at the time. The introduction of the Land and Conveyancing Law Reform Act on the 1st December 2009 caused a gap in the legislation relating to mortgages/charges which was only highlighted when the case came before Justice Dunne. However, it was the Judge’s opinion that it is a matter for the legislature to rectify the position.
In his recent High Court decision in Irish Life & Permanent Plc -v- Duff & Another delivered on the 31st January 2013, Justice Hogan outlined an alternative option for lending institutions which would involve the relevant bank independently suing for an Order deeming it had a valid charge over the secured property and requesting the Court to exercise its inherent power of sale. Basically, a bank would be relying on a power of sale from the Court as opposed to its powers in the mortgage document. Accordingly, banks falling into the particular set of circumstances mentioned above are still in a position to seek to enforce their security by some means.
Requesting the Irish Government to introduce rectifying legislation does not necessarily mean that the Troika is anxious for banks to repossess properties from borrowers in arrears. Minister for Justice, Alan Shatter has pointed out that all mortgages contain “remedies that may be exercised” by banks if a person defaults on their mortgage and that repossession is therefore an existing contractual right. Rectifying legislation is necessary to correct an unintended consequence of the Land and Conveyancing Law Reform Act 2009 that currently restricts lending institutions in particular cases from exercising their right to possess properties in the event of default.
Essentially, the rectifying legislation will allow banks to exercise rights that already exist in the mortgage but cannot be enforced at present because of a flaw in the current legislation. However, it may be of ease to some borrowers to note that the Government will not move to rectify the legislation relating to possession proceedings until adequate protections for debtors and their principal private residences are fully operational under the Personal Insolvency Act 2012. Furthermore, the Code of Conduct on Mortgage Arrears (which sets out the framework that all regulated mortgage lenders must use when dealing with borrowers who are in mortgage arrears) remains relevant and must be complied with by banks before they can even contemplate proceedings to recover possession of a borrower’s primary residence.