Defaulting borrowers are finding sympathy in the High Court as the legal battle lines between lenders and borrowers are played out, writes PAT IGOE
CASES of serious mortgage arrears now coming on every Monday before the High Court leave little doubt that the courts are sympathetic to borrowers in difficulty. This is clear from the approach and treatment by the judges where lenders are seeking possession of homes with mortgage arrears. The rights and role of the courts are limited, although the courts are testing these limits. In doing so, the judges are also helping to clarify the legal battle lines between lenders and their defaulting borrowers.
Last week in the High Court, Ms Justice Mary Laffoy heard arguments for a Clare publican, Elizabeth Floyd, that the sub-prime lender Secured Property Loans Limited should not be given possession of her pub/home because of her mortgage arrears. The high interest rate was unconscionable and oppressive, argued her counsel, Brian Sugrue BL. It constituted a penalty and unjust enrichment for the lender.
But, critically, the judge noted that it was for the Oireachtas, and not the courts, to regulate interest charges. While it was understandable that Floyd had an obvious sense of grievance over the level of debt that she was facing, the court had no jurisdiction to give her relief in respect of the high interest charges.
Ms Justice Laffoy clarified a number of significant points. Firstly, she noted that Floyd had received independent legal advice. Secondly, she took into account factors in respect of the interest rate, which did appear high. These included the size and time period of the loan, the creditworthiness of the borrower and the security offered to the lender. These would have to be considered in whether a bargain between a lender and borrower was unconscionable.
Other recent court cases highlight the broad range of defences that defaulting borrowers may argue. They fall into two broad categories. First is the argument that there is a fundamental flaw in the mortgage documentation such that there is no legally binding agreement between lender and borrower at all or that, if there is, that it should be cancelled by the court because of errors.
The array of very carefully-drafted documents which lenders now require borrowers to sign before any loan cheque is produced, have hugely reduced, almost to nil, the chances of this argument succeeding. Alongside this are arguments that the borrower was the subject of coercion or oppression or deceit. But the usually strict requirement of independent legal advice usually sees all of these arguments off.
The second category is considerably more helpful to borrowers where the court can give more time to regularise the position with the lender. The courts come into their own in requiring the lenders to comply with the law’s strict procedural requirements.
In the High Court, the lenders’ first required port of call is the Master of the High Court, Edmund Honohan, brother of the Central Bank governor, Professor Patrick Honohan. He regularly requires the lenders to amend any defects in their court submissions and file necessary affidavits and decides on adjournments of up to 10 weeks. Little or no sympathy is given to lenders with defective court paperwork.
After the Master’s Court, the lender must then go to High Court number 16 where Ms Justice Elizabeth Dunne initially hears most of these cases. She listens to arguments from the borrowers as to their difficulties. Even where the documents are entirely in order, she can and does put “stays” of a further three months or six months and occasionally even longer to give the borrowers time on possession orders. These decisions are on an ad misericordiam basis and require the cooperation of borrowers with the process.
The judge has also punished lenders by exposing them to costs when they have rushed to the High Court in Dublin when a local Circuit Court with lower costs would have been adequate.
Critically, the courts can slow down the process where eviction is the final destination. Where the borrower is engaging with the lender, then the lenders must now give defaulting borrowers at least 13 months after the first mortgage repayment default before even commencing proceedings.
Court 16 is the final line of defence of borrowers and comes after various required procedures under the Financial Regulator’s Code of Conduct on Mortgage Arrears. A revised code came into effect on 1st January this year. All mortgage providers are required to comply with its provisions, including a mortgage arrears resolution process that is as fair and constructive as possible.
In the “last-chance saloon” in the Four Courts, the judges can and do provide some final protections to borrowers in difficulty and require that every reasonable chance be given to save people’s homes. But, beyond that, the original agreement between lender and borrower will be respected.
Thursday, April 7, 2011
From The Irish Times - "Court 16 is final line of defence."