Limited role of courts in mortgage arrears cases clarified

The Supreme Court has clarified the role of the courts in the administration of the Code of Conduct on Mortgage Arrears agreed between the main banks and the Central Bank. Five judges of the Supreme Court ruled yesterday that the courts could intervene if a lender did not adhere to the code's moratorium on repossessions aimed at giving a "window of opportunity" to explore other solutions to borrowers' mortgage arrears.

The court stressed “different considerations” apply to the other provisions of the code and the relevant legislation gave no role to the courts in determining whether particular proposals concerning mortgage arrears should be accepted.

The "problematic" legal issues raised before the court arose because the Oireachtas did not choose, when empowering the Central Bank to make this "binding" code, to specify if the courts were to have any particular role in applying it, Mr Justice Frank Clarke said.

The courts are only concerned with legal aspects of the important questions concerning entitlement or otherwise of lenders to possession orders over mortgaged properties, he said. However, judges are not “unmindful of the great personal difficulties which have arisen from both the collapse in property prices and the general financial crisis”, he added.

Heavily weighted

The courts have no role in deciding whether financial institutions, in formulating detailed policies on mortgage arrears and applying those to individual cases, could be said to be acting fairly or reasonably, he said.

If it was considered, as a matter of policy, the law governing the circumstances in which financial institutions may be entitled to possession was “too heavily weighted” in favour of the lenders, it was for the Oireachtas “to recalibrate those laws”, he said. “No such formal recalibration has yet taken place.”

The courts have been given no powers to consider the merits of proposals advanced by those in arrears to address their problems and don’t have the resources for such an exercise, the judge said.

The courts’ current function in possession applications was to decide whether the conditions entitling a lender to possession orders exist, he said. The law gave no jurisdiction to consider whether a lender was behaving fairly or reasonably. The jurisdiction conferred on the Financial Services Ombudsman to consider a much wider range of factors in assessing the conduct of financial institutions was well established, he added.

He was giving an important judgment on legal issues arising from two applications by Irish Life and Permanent (ILP) for possession orders.

The first case was brought by ILP against Gemma and Kevin Dunne for possession of lands owned by them at Kilcoursey, Co Offaly, provided as security for a loan. The couple, who have lived outside the jurisdiction since 2010, did not contest the ILP application but a possession order was refused by the Circuit Court which ILP appealed to the High Court.

The second case was brought by ILP against Dylan Dunphy over default on repayments of a €235,000 mortgage loan made in 2008 for a property at Dun na Rí, Buncrana, Co Donegal. ILP issued proceedings in late 2008 and in 2011 secured a possession order, which was stayed while Mr Dunphy appealed to the High Court.

Mr Justice Gerard Hogan had referred legal issues in both cases to the Supreme Court for determination and both cases will now go back to the High Court for decision in light of the findings.