Court cases involving mortgage arrears and bank repossessions come up frequently these days. Where arrears arise, the bank or perhaps a vulture fund who bought its loan book, will try to recover the sums outstanding and, in most cases, will seek repossession of the property as well.
If the property includes the borrower’s family home, the consequences can be very serious for the borrower and his family. In recent years, the courts have tried to be as fair as possible to any borrowers, fearing the loss of their family home. They have required the bank to establish the exact sum of arrears owing and have requested the bank or vulture fund to produce clear evidence of its right to repossess the borrower’s family home under the mortgage agreements entered into.
A recent High Court decision in Ireland illustrated again that the courts will not allow any possession orders against a family home unless the bank can unequivocally establish its right to do so.
The case involved a borrower in Cork who mortgaged his family home in 2001 to First Active PLC. The bank subsequently sold their loan book to Promontaria, a so-called vulture fund. New rules came into effect in 2009 dealing with mortgages entered into after 2009 but this case was dealt with under the old system. Under this system, the mortgage deed gives an interest in the property to the bank subject to the borrower’s right to redeem the loan at any time.
The bank sued for their arrears and for repossession in the Circuit Court. They did not exhibit a copy of the mortgage deed in their affidavit but only exhibited a brief summary of the mortgage deed. The borrower, unfortunately, lost his case in the Circuit court and appealed to the High Court.
In the High Court, the bank admitted they could not produce either the original or a copy of the mortgage deed but argued that these old (pre-2009) mortgages conferred on the bank “an inherent right to possession” by giving them an interest in the borrower’s property subject to his right to redeem.
The High Court judge, however, took a different line. He pointed out that any bank seeking repossession of a family home must establish it has a right to take back possession of the property and “that can normally only be established by producing a copy of the mortgage deed … because the inherent right to possession… may well be constrained by the terms of the mortgage deed.”
The judge said the bank had shown no evidence as to what the terms of the mortgage were in respect of their right to possession or a power of sale.
The court held the bank had completely failed to establish its right to possession had arisen under the mortgage deed by relying only on a summary of the deed. The judge therefore allowed the appeal and set aside the earlier order for possession.
The judge did stress, however, that his judgement only affected old style mortgages on unregistered land and that a different outcome might arise in the case of registered land or mortgages over unregistered land created since December 2009 when new rules came into effect.
Promontaria (Finn) Ltd v Flavin [2023] IEHC 663.
A.C. FORDE & CO. LLP
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