THE CODE of conduct on mortgage arrears which had been issued to lenders by the Financial Regulator was not be a “hollow formula” and must be complied with, the Master of the High Court said yesterday. Edmund Honohan struck out three cases yesterday on the basis that there was no evidence before him that the lenders had complied with the code.
Brandishing a copy of the Guardiannewspaper, Mr Honohan also cited a report on a recent case in the UK in which a subprime mortgage lender was fined €5 million for mistreating customers who fell into arrears. "Lenders take note," he warned.
Applications from lenders for orders of possession against people who are in mortgage arrears come before the Master of the High Court before advancing to a Chancery Summonses hearing before a High Court judge.
The master assesses the applications, ensuring that all documentation is in order and codes have been complied with before referring the matter on to a judge.
He may also strike out a judgment or grant an order of possession if there is consent between the parties.
The Code of Conduct on Mortgage Arrears, issued by the Financial Regulator in February, requires that mortgage lenders take certain steps including negotiating new terms with borrowers before seeking to repossess mortgaged properties. Lenders are legally required to comply with the code.
In a case involving KBC Mortgage Bank yesterday, an affidavit produced on behalf of the bank had simply stated that the lender was aware of the code and was in compliance with it.
Mr Honohan found it was not sufficient. He said it appeared the plaintiffs did not know anything about the code and, to the surprise of barristers present, he produced copies of the code to be circulated in the courtroom.
Quoting from the code, he said lenders were required to carry out a number of steps including developing a plan with the borrower for clearing arrears and issuing a formal demand after three missed payments with details including the amount of arrears.
“Was this explored in this case? I don’t know,” he said.
“The court must be satisfied each step in the code is complied with; it is not an option, it is mandatory. The code is not a hollow formula, you must verify it.”
He said cases without that evidence would not proceed and would be struck out.
Two other cases were also struck out. “The message has to go out to lenders it is a matter of law,” he said.
“I can’t have a situation where the court is giving an order and the code of conduct hasn’t been complied with.”
But he allowed a case involving Leeds Building Society go forward for hearing before a High Court judge after an affidavit was produced that did show compliance with the code.
Mr Honohan said it was very important borrowers in arrears engaged with lenders, otherwise the legally beneficial effect of the code would be lost.
“The law will protect you if you engage with the lender,” he said.
