Master of High Court warns banks on repossessions

An “avalanche” of new home repossession court cases is anticipated, but banks cannot expect to have its all their own way in this recession “of historic proportions”, the Master of the High Court has warned.

Options other than possession orders might be preferred by the courts, he indicated.

Master Edmund Honohan said the number of possession cases is increasing weekly and, because few cases to date appeared related to recent job losses, he expected an “avalanche” of new cases over the rest of this year and next.

As many home owners represented themselves in court, he considered a need has arisen to share legal information with the public on possession applications.

Banks and lawyers should remember the courts have discretion whether or not to grant possession orders and the behaviour of the lender is a relevant factor which may determine the outcome, he said.

New market conditions demanded new legal solutions - “better still, solutions that are both legal and equitable” - and orders for possession will not be made “as a matter of course”.

In the illiquid property market of a recession, an interim regime protective of the long term interest of borrower and lander might be substituted in place of a final possession order. “No one gains from rows of empty shuttered houses.”

In the case of subprime lenders, the courts may look carefully at the higher rates of interest chargeable and consider if such rates meant the lender accepted the risk of default of, at the very least, could be said to have agreed to share the risk with the borrower.

Failure to stress-test loan applications; failure to require insurance cover for critical illness or unemployment; commissions paid on the transaction and the published profits of the lender were other factors the courts may look into.

The courts would also check a sub-prime lender conforms to good general banking codes (including those now under discussion) on rescheduling and/or debt forgiveness. A refusal to abide by the code “will cause problems” for the lender.

The courts would not accede to a lender’s demands in any one case so as to send a strong message to other borrowers in difficulty. “That is no function of the law.”

Nor would the courts look kindly on lenders who make people travel from all corners of the country to attend court in Dublin when local courts could deal with possession applications. Requiring such travel was “an uncharitable and brutal affront” to borrowers.

Each case must be considered on its merits and while defaulters were not looked upon with much sympathy in the past, we are now going through a recession of historic proportions with “many, if not most” borrowers, not to blame for their arrears, he said.

The number of repossession cases was increasing weekly, with an emerging pattern of about 80/20 between sub-prime lenders and high street banks. In virtually all cases before him since October last, the mortgage arrears were already in excess of nine months when proceedings were initiated.

While the High Street banks had fewer cases and might therefore be considered to be acting with “greater forbearance”, the subprime claims mainly appeared to consist of re-mortgages of loans advanced by the main banks, often coupled with personal credit facilities.

Subprime mortgages were “mostly last resort advances for borrowers already in difficulty” and, in many cases, default occurred “almost as soon as the ink on the mortgage deed is dry”.

Mr Honohan said, in the present climate of virtually no house sales taking place anywhere, unless there was credible evidence a sale might be on the cards in the forseeable future, there was really “no good reason” to give immediate vacant possession.

As a matter of law, the lender does not have to have vacant possession before they can sell, he noted. If a lender got possession but did not sell promptly, they could face liability to the mortgagor for avoidable dilapidation of the property and could also lose the right to seek a money judgment for the original debt or for any unpaid balance after any eventual sale of the property.

While there may be grounds in law for granting an order for possession, there may also be grounds in equity for refusing it, he said. A “little clear thinking” was needed and each case must be considered on its own merits.

The Master, who deals with procedural court applications, was delivering judgment on an application by GE Capital Woodchester Home Loans for an order for vacant possession against a couple, Patrick and Paula Connolly, over their home in Waterford. A mortgage was given in July 2007 for €226,500, the couple started falling behind in repayments in November 2007, and arrears were €22,000 in December 2008.

He said the company had told the court it wanted to sell the house because of mortgage default but the court needed “facts” to decide if this was a suitable case for a possession order. In this case, he was given little to go on and the couple had also been summoned to Dublin from Waterford.

He believed the case should be remitted to the Circuit Court and would adjourn the application to allow lawyers take instructions on that as he was only empowered to remit the matter on consent.