Wednesday, 20 June 2012
IMPORTANCE OF COMPLIANCE WITH CODE OF CONDUCT ON MORTGAGE ARREARS 2011
A recent decision by Ms. Justice Laffoy in March 2012 in a case of Stepstone Mortgage Funding Limited and Fitzell highlighted the importance for Banks of complying with the terms of the code of conduct for mortgage arrears 2011.
This was a case where the Bank had entered into interim arrangements for the repayment of the mortgage with the borrowers after proceedings/possession of the borrower’s family home had been instituted. After the revised repayment schedule had failed the Bank wrote to the borrowers and requested an updated standard financial statement (SFS) which was received by the Bank on the 30th September 2011. After considering the SFS the Bank advised the borrowers that they were not prepared to offer a further repayment arrangement and that they were going to proceed with a litigation process. They went on to advise the borrowers that “given that this process has already commenced, you do not have the benefit for the MARP process referred to in the 2010 Code of Conduct and Mortgage Arrears 2011 (i.e. the current Code) and consequently among other things you do not have the right to appeal this decision”.
When the matter came before the Master of the High Court he adjourned the case on the basis that the Bank had not complied with their obligations to allow the borrowers to appeal. The Bank appealed this decision to the High Court and the matter came before Ms. Justice Mary Laffoy.
In the course of her decision Ms. Justice Laffoy referred to the obligations on the part of the Bank and as set out in the Code of Conduct. She came to the conclusion that in circumstances where proceedings for possession of a primary residence by way of an enforcement of a mortgage or charge to which the current Code applied, the Bank were under an obligation to demonstrate to the Court compliance with the Code. She referred to the imposition of a moratorium on the initiation of proceedings which is contained in provision 47 of the current Code and which as a result of the updated Code was increased from six months to twelve months .She observed that in circumstances where a Court was seeking to evict a person from his/her home, the Court was entitled to know that the requirements set out in provision 47, which had been imposed pursuant to statutory authority, were complied with. The Court came to the conclusion that the current Code had not been complied with and in those circumstances refused the Bank’s application.
This case has very clear implications for Banks in cases relating to the repossession of family homes.
What is not altogether clear is whether the same standard i.e. the need to comply with the obligations under the Consumer Protection Code 2012 applies in relation to non Principal Private Residences.
It should be noted that in order for a borrower to be able to sustain a Defence for breach of the Consumer Protection Code 2012 it would have to demonstrate that it is “a personal consumer” i.e. was acting other than in its normal trade or business. A borrower may be able to establish a Defence on foot of some aspects of the 2012 Consumer Protection Code such as the duty on the Bank to have to resolve an arrears issue before commencing proceedings or by arguing that a lender had exercised undue pressure on a borrower. It is a Defence that given the relatively low threshold for establishing an arguable Defence which may have the effect of persuading the Master of the High Court to refer to the case for a full hearing in the High Court, the Fitzell decision may make it more difficult for banks to obtain summary Judgment.
For further information or enquires in relation to mortgage arrears or any personal insolvency
queries do not hesitate to contact Brendan Dillon on 01 296 0666 or firstname.lastname@example.org.