Court hears of mortgage firm concerns

A LEGAL challenge to the entitlement of Start Mortgages Ltd to issue mortgages here has major implications for Start’s €1 billion housing loans in Ireland and for the legal position of other lenders, the Central Bank has told the Commercial Court.

Hundreds of actions by Start Mortgages for repossession orders are also affected by the challenge brought by Robert Gunn, Mr Justice Peter Kelly noted yesterday when granting the Central Bank’s application to fast-track the challenge to Start’s entitlement to issue loans.

The application was supported by lawyers for the State and for Start, while Ross Maguire SC, for Mr Gunn, adopted a neutral position. The judge directed the Gunn action will be heard in March.

Mr Gunn, an unemployed construction worker, who is represented by the New Beginnings group of lawyers and business people, last month initiated his challenge aimed at stopping Start repossessing his home at Lyre, Lisselton, Co Kerry. In 2007 he obtained a mortgage of €210,000 from Start, secured against his family home, but after losing his job in 2008, he fell into arrears on repayments.

In his judicial review proceedings against the Central Bank and the State, with Start as a notice party, Mr Gunn claims Start was not legally authorised to make the loan to him because, he claims, it was not regulated by the State as required. Mr Gunn claims only the Central Bank has the power to prescribe any entity as a “credit institution” and the purported delegation of that power to the consumer director of the Irish Financial Services Regulatory Authority is unconstitutional.

He claims the then consumer director of the authority unlawfully and unconstitutionally prescribed Start as a “credit institution” within the State in 2004. He claims provisions of the 1942 Central Bank Act did not vest, delegate or transfer the power to prescribe a credit institution to the office of the consumer director.

Jim Breslin for the Central Bank said the proceedings had implications, not just for Start but all other institutions prescribed by the consumer director as a “credit institution”, including many subsidiaries of banks.

Mr Gunn’s case was fundamentally misconceived but if he was correct and the statutory instrument under which the consumer director acted was made without authority or was unconstitutional, that would have significant implications for institutions designated by the director, Mr Breslin said.

While the Central Bank, due to confidentiality requirements, could not provide details about the loan books of the various institutions to support its arguments as to the urgency of the case and its commercial significance, Start Mortgages had provided an affidavit setting out the specific extent of its loan book which was some €1 billion, he added.

Denis McDonald SC, for Start, said it had a significant commercial business here and the reliefs being sought by Mr Gunn would have a significant impact on that business if he was correct. Mr McDonald also referred to the hundreds of legal actions brought by Start and said these proceedings could have a lot of impact on those cases.

It was Start’s case it was properly designated a credit institution here. He was further arguing that Start was a mortgage lender and, in those circumstances, did not have to be designated a “credit institution”.