This is a guest piece by Ross Maguire SC on behalf of New Beginning, a group of business people, lawyers and concerned citizens assisting distressed homeowners at risk of repossession who are without legal representation.
New Beginning formed in October 2010 in order to provide legal representation to people facing repossession of their principal private residences. It was obvious that the lists of such applications were growing and that, in the main, borrowers were unrepresented.
While there has been a long tradition of pro bono work undertaken by lawyers in Ireland, the scale of the problem needed a formal response. The difficulty with representing people in these circumstances is that there is very little, if any, defence available to them. In essence it is a simple matter of the law of contract where the borrower has pledged their home as security in case of a default on repayment of a loan. Once there is default the lender is, in effect, entitled to possession for the purposes of sale of the property. Any balance that remains post-sale is a personal debt to the borrower.
Since New Beginning's inception, we have looked at ways to stymie the lenders right to possession.
Our first challenge, which remains unresolved, relates to the power of the County Registrar to make orders of possession of family homes. The power is really a default power. However, new Rules introduced in 2009 have increased this power. A County Registrar now has power to make an order in circumstances where he or she is of the view that no bona fide defence exits. The argument is that given the profound consequences of such an order it ought only to be exercised by a Judge appointed under the Constitution.
The second challenge concerned the prescription of "subprime lenders" as 'credit institutions' pursuant to the Consumer Credit Act. Leave to bring the proceedings was granted by the High Court. The point was very strong and concerned the entire absence of regulation of these entities. Almost immediately the Central Bank, the Respondent in the action, sought to have the matter transferred to the Commercial List of the High Court. The Bank argued that the proceedings raised very serious commercial issues and ought to have the benefit of the fast tracked provisions available to that list.
Once the matter was entered in the Commercial List the subprime lender in question argued that it was irrelevant whether or not it was a credit institution as the market was entirely unregulated - despite the fact that it continues to hold itself out as a 'credit institution'. In effect anybody could operate in the business of making home loans.
The Court agreed with that and subsequently the Central Bank applied to strike out the proceedings as being a moot. The Court acceded to that application and the leave to bring the proceedings was set aside with costs of the entire proceedings granted to the Central Bank.
We now have a position where a body can be wrongly prescribed as a 'credit institution' in the State and have the benefit of such prescription, and the High Court will not allow that to be challenged. One of the reasons given by the Court in Gunn v The Central Bank of Ireland & Ors (a decision of Kelly J on 21 February 2011) was the apparent busy-ness and importance of the Commercial Court. It is hard to see how such a position is compatible with the Irish Constitution, which does not recognise the role of the Commercial Court as being distinct from the High Court, and guarantees access by the citizen to the Courts. This judgment is hugely disappointing and may reflect a bias against people with mortgage difficulties. The decision is under appeal to the Supreme Court.
Finally, we challenged the power of the Courts to make orders under section 62(7) of the Registration of Title Act, 1964. In that case, Start Mortgages Limited & Ors v Gunn & Ors, the provisions of section 62(7) had been repealed, without saver, by the coming into force of the Conveyancing and Law Reform Act in December 2009. Section 62(7) gives the Court jurisdiction to grant possession to mortgagees of registered land in circumstances where there has been default on the repayment of the mortgage.
The creditor argued that the provision was saved by the terms of the Interpretation Act, 2005. This provides that a statutory right is not affected by the repeal of the section giving the right. The issue before the High Court was whether or not such a right existed. The borrower argued that, as the section used the words 'may' and 'if it thinks proper', the Court was given discretion and no right existed. The lenders argued that the right to possession was built into the original agreement and therefore was saved by the Interpretation Act.
The High Court held that if the default had occurred prior to 1 December 2009 the Interpretation Act saved the provision as against the borrower as a right to possession had accrued. On the other hand, if the default had not occurred by the 1st of December 2009 the section was dead.
This is a very significant decision for borrowers holding registered land. In effect the method of seeking possession in a summary manner is no longer available. In many cases it will give borrowers extra space and time, which can be hugely helpful to them. It should be noted that this decision is also under appeal.
Finally, New Beginning continues to provide pro bono representation, and each case can present unique circumstances both of fact and of law. We have been involved in drafting legislation that would give Judges real discretionary powers in determining whether to grant possession of homes to lenders. One of the factors that the Court would be entitled to take into account under such hypothetical legislation is the 'conduct of the lender'. Such powers would be resisted by the lenders but would provide a more balanced approach and would give recognition to the importance of the family home in society.
In the absence of such legislation the status quo remains, where lenders are entitled to possession as of right. The fact that the law is blind to the reality of what went on in Ireland between 2004 and 2008 means that justice is neither done, nor is it seen to be done.
In November 2011 the Irish Central Bank released figures showing an increase of family mortgages in arrears of over 55% since 2010. At the time, FLAC Director-General Noeline General said that "the long promised personal insolvency strategy and legislation has not been produced. That action should be prioritised and properly resourced" - click here to read more.
Click here to read FLAC's "Nine Key Principles to Overcome Personal Debt", published in October 2011.