Lender must show ‘mortgage to rent’ is only pilot scheme, court rules

A financial institution must show it is not signed up to a "mortgage to rent" scheme, and is only operating a pilot scheme, if it is to succeed in its claim to repossess a couple's home, the High Court ruled.

The scheme was set up by the Government to help homeowners at risk of losing their home whereby a lender sells the house to a housing agency and the borrowers would then become tenants of that agency.

Mr Justice Michael White was dealing with a dispute over whether a Dublin couple was entitled to avail of that scheme.

He said a lender, Stepstone Mortgage Funding Ltd, must show that it is only operating a pilot mortgage to rent scheme, which would mean it is not in breach of the Central Bank's 'Code of Conduct on Mortgage Arrears'

It would therefore be entitled to an order for possession of the home of Alan and Ursula Clarke at Dunard Road, Crumlin, Dublin, over arrears on a €300,000/35-year mortgage they took out in 2007. Repayments were €2,313 per month.

The court heard the couple, who live in the house with their five dependent children, first went into arrears in June 2008 and despite a number of alternative arrangements with Stepstone these were unsuccessful and arrears stood at €32,579 in 2010 when legal proceedings were initiated.

The couple’s economic circumstances changed from 2008 onwards and the business they operated eventually closed in 2012. They are currently unemployed.

Mr Justice White said in June 2013, Stepstone offered them the option of selling the house and writing off any remaining balance, following the sale, due on the mortgage.

They declined as they were concerned that due to the length of the council housing waiting list and the state of the private rented market that they would be rendered homeless.

A month earlier, the Clarkes asked Stepstone about the mortgage to rent initiative but Stepstone said it did not participate in the scheme.

With assistance from David Hall of the Irish Mortgage Holders Association, it was asserted Stepstone did participate.

Mr Justice White said Stepstone director Richard Harper had sworn Mr Hall was incorrect.

Mr Harper said Stepstone had only operated a pilot scheme with ten borrowers to assess whether it would reconsider its policy in relation to the scheme. The mortgage to rent scheme was extremely complicated, costly, takes a considerable amount of time and in its current form is unworkable, Mr Harper said.

Mr Harper also said out of 2,337 families nominated for the scheme, only 38 have been completed and Bank of Ireland and AIB have completed only one such transaction each.

Mr Hall said the idea of a pilot scheme was never envisaged by the Central Bank’s code of conduct as this would open up the possibility of lenders being able to cherry pick between equally eligible borrowers. Stepstone argued there was no obligation under the code to explore the mortgage to rent scheme with the Clarkes.

Mr Justice White said the question of whether there was such an obligation, depended on the interpretation the court gave to paragraph 39 of the code of conduct, which includes provision for equity participation and split mortgage schemes.

On analysing the Central Bank’s guide to a mortgage to rent scheme, the judge said it was clear it was not mandatory. If Stepstone had signed up for it however, there was an obligation to explore it for the Clarkes and if not, there was no such obligation, he said.

It was essential Steptone demonstrate to the court that it has not signed up. If it was only a pilot scheme, then Steptsone was not in breach of the code of conduct and the Clarkes cannot resist the order for possession, he said,

He therefore adjourned the matter for Stepstone to provide evidence that it was a pilot scheme.