Court refuses order of Possession

Court refuses order of possession in light of failure to comply with Code of Conduct on Mortgage Arrears

In the recent case of Irish Life and Permanent PLC v. Malcolm Duff and Susan Duff [2013] IEHC 43, Irish Life & Permanent sought to recover possession of a family home. Mr. Justice Hogan followed the line of reasoning of Ms. Justice Laffoy in Fitzell and found that, prior to the commencement of proceedings, the Bank had failed to comply with Clause 6 of the Code of Conduct on Mortgage Arrears in that it couldn’t be said that “every reasonable effort” had been made to agree an alternative repayment schedule. Nor could it be said that the Duffs were “non-cooperating borrowers”. In such circumstances, the Court held that it would not be appropriate to grant an order for possession.

A breach of the code is a regulatory breach for which the Bank can be sanctioned by the Central Bank and in Zurich Bank v McConnon ([2011] IEHC 75) the High Court held that the Consumer Protection Code was lacking any provision suggesting contravention of its provisions renders a facility unenforceable or null and void. Up until early this year no case had yet considered the possibility of whether a breach of the CCMA would have any effect on the validity or enforceability of the underlying mortgage contract. However, a recent decision by Ms. Justice Laffoy in March 2012 in the case of Stepstone Mortgage Funding Limited v Fitzell highlighted the importance for Banks of complying with the terms of the CCMA when seeking to repossess property.

By way of background to the case, the Bank had entered into interim arrangements for the repayment of the mortgage with the Borrowers after proceedings for possession of the Borrower’s family home had been instituted. The Bank wrote to the Borrowers after the revised repayment schedule had failed and requested an updated standard financial statement which was completed by the Borrowers and received by the Bank in September 2011. The Bank subsequently advised the borrowers that on the basis of the SFS they were not prepared to offer a further repayment arrangement and that they were going to proceed with a litigation process. They then went on to advise the Borrowers that as the litigation process had already commenced, the Borrowers did not have the benefit of the Mortgage Arrears Resolution Process (MARP) referred to in the CCMA  and that consequently, they did not have the right to appeal the decision.

When the matter came before the Master of the High Court he adjourned the case on the basis that the Bank had not complied with their obligations to allow the borrowers to appeal. The Bank appealed this decision to the High Court and the matter came before Ms. Justice Mary Laffoy. Having considered the obligations of the Bank in light of the CCMA, Laffoy J. concluded that the Bank was under an obligation to demonstrate compliance with the Code to the Court in cases such as this where proceedings for possession of a primary residence were taken by way of enforcement of a mortgage to which the Code applied. Reference was specifically made to the imposition of a moratorium contained within paragraph 47 of the Code on the initiation of proceedings for 12 months from the date the mortgage enters the mortgage arrears resolution process. If arrears have arisen and have continued for 31 days, the lender must tell the borrower and any guarantor in writing that the resolution process is being applied to the mortgage. She pointed out that the Court was entitled to know that the requirements of paragraph 47 had been complied with and that in this case the Bank had failed to do so which resulted in the refusal of the Bank's application.

The case demonstrates the significance of a lender's current obligations under the CCMA and the seriousness with which the Courts are now regarding its provisions, most notably in cases of repossession.

For advice on of the above mentioned issue or if you have a Banking or Security query please contact your usual contact at Byrne Wallace Shields LLP.

Originally posted under the title - Stepstone Mortgage Funding Limited v Fitzell [2012] IEHC 142 on the 5th November 2012