Legal Issues in Irish Residential Mortgages, September 2013

Directions govern the enforcement of residential mortgages which protect borrowers (Mortgagors) and oblige lenders (Mortgagees) to fulfil onerous obligations to enable them to enforce their security.

We continue to advise clients who are interested in acquiring books of Irish residential mortgages, investing in Irish covered bonds or investing in Irish RMBS. This Briefing updates our previous November 2012 Briefing on the same topic, taking into account legal and regulatory developments since that date. It contains a summary of certain legal considerations relevant to potential purchasers together with a brief outline of legal issues regarding the servicing of Irish residential mortgages. Of particular concern to potential investors should be issues which impact on either the enforceability of the mortgages themselves or the enforcement timeline.

ENFORCING RESIDENTIAL MORTGAGES

Issues which Impact on Enforceability

Repossessions/Start Mortgages v Gunn

The cases of Start Mortgages Ltd & Ors v Gunn & Ors [2011] IEHC 275 and the subsequent decision in Tom Kavanagh and Fergus Lowe v Jeremiah Lynch and Saint Angela's Student Residences Limited [2011] IEHC 348 highlighted issues with the manner in which the Land and Conveyancing Law Reform Act 2009 repealed or amended provisions of the Conveyancing Act 1881 and the Registration of Title Act 1964, leading to uncertainty for Mortgagees who wished to exercise, as regards pre-1 December 2009 mortgages, their summary possession power, power of sale, power to appoint a receiver or power to overreach (i.e. to sell clear of subsequent interests such as judgment mortgages). On 24 July 2013, the Land and Conveyancing Law Reform Act 2013 was signed into law, and Section 1 of that Act, which came into force immediately, rectified these issues save in respect of pre-1 December 2009 mortgages where legal proceedings had started before 24 July 2013. In those cases, to benefit from the new Act, the proceedings would need to be withdrawn and re-commenced. As regards enforcement proceedings against the estates of deceased persons, the Act provides that so long as those proceedings are brought within 6 months of 24 July 2013, they will be deemed to have been commenced within the time-limits set out in the Civil Liability Act 1961.

European Communities (Unfair Terms in Consumer Contracts) Regulations 1995, 2000 and 2013 (the Unfair Terms Regulations)

The Unfair Terms Regulations are particularly relevant in respect of the enforceability of residential mortgages and related loan documentation. An unfair term in a consumer contract is not binding on the consumer, however this should not affect core terms if they are drafted using plain intelligible language. In the case of a residential mortgage where the Mortgagor is a consumer, if the relevant loan or mortgage contract is capable of continuing in existence without the unfair term, that contract will continue to bind the parties. If any charges are found to be in violation of the Unfair Terms Regulations, the Mortgagee may be precluded from recovering those amounts, or they may be set-off against the total amount secured, which will damage the value of the Mortgagee's security. Potential purchasers of Irish residential mortgage books should inspect carefully the terms of the mortgage and loan documentation to ensure that there is no violation of the Unfair Terms Regulations.

European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004 (as amended) (the Distance Marketing Regulations)

Residential mortgage and lending contracts entered into without the Mortgagee and Mortgagor being simultaneously present may be regarded as distance contracts and come within the scope of the Distance Marketing Regulations where the Mortgagor is a consumer. Under the Distance Marketing Regulations a distance contract may not be enforceable against a consumer if the supplier has failed to give certain information to a consumer before that consumer is bound by the contract. This information includes details of certain contractual terms and conditions and the total price to be paid by the consumer. If the Mortgagee did not provide such information to the Mortgagor, the Courts may find the relevant mortgage or loan contract unenforceable. However, a Court may decide that the contract is enforceable if it is satisfied that the breach was not deliberate and did not prejudice the Mortgagor, and that it would be just and equitable to dispense with the Mortgagee's obligation to provide that information. Potential purchasers should bear in mind that checking an Irish residential mortgage book for compliance with the Distance Marketing Regulations is essential.

Protection of the Family Home

A family home is defined in Irish law as a dwelling in which a married couple ordinarily resides. In Ireland, the family home is afforded special protection under both the Constitution and legislation, which renders enforcement of security over family homes more difficult for Mortgagees. Under the Family Home Protection Act 1976 (as amended, the 1976 Act) a spouse who does not own the family home must give prior written consent to any disposal of an interest in the family home, including by way of mortgage. If this consent is ineffective or has not been given, any transaction disposing of the family home could potentially be set aside at the instance of the non-owning spouse within certain time limits. The 1976 Act also provides that a Court may restrict enforcement of a mortgage or sale in certain circumstances. Pursuant to the Family Law (Divorce) Act 1996, if an individual is found by the Courts to have disposed of the family home with an intention to deny his/ her spouse a right to that family home, the transaction disposing of the asset can be set aside. A Mortgagee will only be protected if it is shown to have acted without intentionally seeking to deny a spouse his/her rights. Family home issues are normally dealt with by the Mortgagee obtaining a declaration that the relevant Irish property either is or is not a family home. Potential purchasers of Irish residential mortgage books should conduct their own diligence of the relevant loan files to confirm that these declarations have been provided, or obtain appropriate warranties from the seller that such declarations have been obtained and the relevant legislation has been complied with.

Since the enactment of both the Personal Insolvency Act 2012 and the Land and Conveyancing Law Reform Act 2013, further protections are now available for the family home. Under the Land and Conveyancing Law Reform Act 2013, where a property is the principal private residence of a...