The recent judgment of the Supreme Court in the case of Irish Life and Permanent PLC and Dunne and Irish Life and Permanent PLC and Dunphy puts the final nail in the coffin of the Central Bank's Code of Conduct on Mortgage Arrears (CCMA) as a consumer protection measure in repossession proceedings.
Mr Justice Frank Clarke delivered an unequivocal five-judge decision on May 15th, 2015. The Supreme Court found that, when hearing a repossession case, a court can have regard for only one provision of the code, namely the obligation on a lender not to bring legal proceedings within the moratorium period allowed to a borrower in arrears.
Significantly, the lender’s obligation to make every effort to agree an alternative payment arrangement with a borrower before bringing a repossession case is not a matter a court will consider; nor can a court investigate, in terms of granting or refusing to grant an order, how reasonable the lender’s decisions were under the code.
This legal clarification comes from two cases involving applications to repossess residential properties. These had been the borrowers' principal dwelling houses, one located in Donegal, in the case of Dylan Dunphy, and the other in Offaly, in the case of the Dunne family. The cases had commenced in the Circuit Court and were appealed to the High Court.
Points of law
Mr Justice
Gerard Hogan
in the High Court referred certain points of law to the Supreme Court as a case stated.
In these cases, the court was considering the 2010 edition of the code which came into operation on January 1st, 2011. Rule 47 of the 2010 code stated that where a borrower was co-operating with a lender in terms of the Mortgage Arrears Resolution Process imposed by the code, that lender had to wait at least 12 months from the date at which the process applied before bringing legal proceedings for repossession of a family home.
Crucially, the rule went on to provide that “any time period during which the borrower is complying with the terms of alternative repayment arrangement agreed with the lender” does not count for the purposes of the 12-month period. This meant that even where a payment arrangement broke down, a lender would still have to wait 12 months, or whatever balance of that moratorium remained, before bringing proceedings, as long as the borrower continued to co-operate.
In this respect, the court was considering a relatively substantial protection for borrowers and, ultimately, isolating it from the all other protections of the code to name it as the only legally binding obligation that a borrower was entitled to rely upon when faced with repossession action in the courts.
The court was, however, conscious that the code has subsequently been revised as it specifically states that “like consideration would apply to any similar provisions in the current or any future revisions of the code”.
In fact, a later version of the code is in force since July 2013, replacing the 2010 code. The current version substantially watered down both the length and the usefulness of the moratorium. Rules 45 and 47 of the current code provide that a lender may bring legal proceedings three months from a relevant date or eight months from the time arrears first arose, whichever is the later, if the lender decides not to offer an alternative repayment arrangement to the borrower or where the borrower rejects an alternative repayment arrangement.
Almost invariably, with the vast majority of cases in arrears for some time, three months is the limit that applies.
The judgment pointedly observes a number of times that it is not the court’s job to make the law or stretch it to fit a particular perception of fairness, when the State itself has not seen fit to do so.
Accident waiting to happen
The Free Legal Advice Centre (FLAC) believes the code has long been an accident waiting to happen. It is emblematic of a conscious decision by both government and regulators over time not to challenge the primacy of financial institutions by initiating primary legislation that might protect borrowers in arrears from potentially arbitrary and unfair treatment at the hands of lenders.
Fast on the heels of the Supreme Court decision, the Central Bank recently announced some headline results of its "Themed Inspection" on lender compliance with the CCMA. Examining 350 files, it found "weaknesses of varying degrees were identified across all four areas examined" in respect of the practices of seven mortgage lenders.
Yet no sanction has been imposed on any lender for breach of the code and neither are any proposed, with lenders reportedly being given until the end of November to clean up their act.
Ultimately, the Supreme Court has given a very clear decision and the ball is now very firmly in the Government’s court. Between January 2014 and March 2015, according to the Central Bank, a total of 14,212 new applications were brought by lenders in Circuit Courts to repossess family homes in this country. Given how short it is, it is highly likely that the moratorium period will have expired in the vast majority of these cases before the proceedings were even issued.
Borrowers who are defendants in these cases may have complaints about how lenders adhered to other aspects of the code, but this judgment makes it clear that compliance is no longer of any use to these defendant borrowers.
It is a bleak landscape then for borrowers who are dependent on the courts to implement the code. It is also a clear statement to legislators and regulators that they need to act now if the conduct of lenders is to be taken into account when family homes are being repossessed through the courts.
Paul Joyce is a senior policy analyst with the Free Legal Advice Centre