The legal status of Codes of Conduct had been clarified in the judgment of the Supreme Court in Irish Life and Permanent plc v. Dunne. The High Court recently gave further guidance on the issue in Allied Irish Banks plc v Buckley. The bank brought proceedings against a defaulting mortgagor seeking possession of certain registered land which included the defendant’s home. The loan was secured on the home as the home and surrounding farm were all included in the same Land Registry Folio number.
It was accepted that the bank had not complied with the enforcement moratorium provided for in the Code of Conduct on Mortgage Arrears (the “Code”) given that this was a commercial loan. (The Code is intended to ensure that a mortgagor has been given a reasonable chance to address loan arrears before the mortgagor’s principal residence can be repossessed.) In resisting the application, the defendant pointed out that the Code stipulates that it applied “to the mortgage loan of a borrower which is secured by his/her primary residence” and argued that the moratorium should have been applied.
The court agreed, and noted that the Code requires the moratorium to be applied in “legal proceedings for repossession of a borrower’s primary residence”. This language focusses on the target of the possession proceedings.
The Court noted that the Code states;
a) the lender has made every reasonable effort under this Code to agree an alternative arrangement with the borrower or his/her nominated representative;
The Court noted that the stated application of the Code (“to the mortgage loan of a borrower which is secured by his/her primary residence”) had the possibly unintended and anomalous consequence of requiring a commercial loan secured on (amongst other properties) a primary residence to be treated by the bank as subject to the Code’s requirements generally. This might include a requirement to comply with provisions of the Code such as offering an alternative payment arrangement in respect of the entire loan, notwithstanding that its principal purpose was commercial and that a bank might not be seeking possession of the primary residence itself. The Court did not reach a particular conclusion on this point but did note that, in any event, the enforcement moratorium would only ever apply to a primary residence and that a bank would not be restricted by a court from taking enforcement against other secured property.
In this case, the bank’s special summons seeking possession made no distinction between that part of the folio lands which was the defendant’s primary residence, and the balance of the lands contained in the folio, While the bank did clarify that it was only seeking possession of the part of the secured property that did not comprise the primary residence in both the bank’s grounding affidavit (sworn in support of its special summons) and the preceding letter of demand, the Court held that this was insufficient as the special summons established the parameters of the proceedings. Consequently, he dismissed the proceedings for failure to comply with the Code.
The decision in this case highlights a hurdle that banks have to navigate if their security extends to the primary residence.
As a firm, we have negotiated good settlements on behalf of borrowers in cases where the bank’s security extended to the primary residence, and thereby made it more awkward for a lending bank to appoint Receivers.
Another way for borrowers to deal with such a scenario might be to use a Personal Insolvency Arrangement, and put forward a proposal that the “commercial” property that is “cross secured” on the family home should be retained by the Debtor so that the Rental/Income stream from the “commercial” property may be used to pay down the mortgage, with the mortgage amount being reduced to the combined market value of the primary residence and the “commercial” property.
The full judgement may be read by clicking on the link below. (PS: The link works best from a personal computer.)