The Irish High Court recently refused to grant a lender a possession order in circumstances where it had failed to adhere to the Code of Conduct on Mortgage Arrears: Steptone Mortgage Funding Ltd v Fitzell & Anor IEHC 142, (Unreported, High Court, Laffoy J, 30 March 2012).
Code of Conduct on Mortgage Arrears
The Financial Regulator’s revised Code of Conduct on Mortgage Arrears came into effect on 1 January 2011. It applies to borrowers who are in arrears in respect of mortgages secured by their primary residence on or before that date.
The Code provides that a lender must have in place a Mortgage Arrears Resolution Process (MARP) which embodies the five steps of the Code, namely (i) communication with borrowers; (ii) financial information; (iii) assessment; (iv) resolution; and (v) appeals. Lenders are obliged to explain their MARP to borrowers and in particular to outline the alternative repayment measures open to borrowers and the availability of State support.
The Code also requires that the MARP be applied to pre-arrears cases, defined as cases where the borrower informs the lender that he is in danger of going into financial difficulties and is concerned about going into arrears.
Moratorium on Legal Proceedings
Once a borrower is classified as a MARP case, the Code imposes a moratorium on the initiation by the lender of proceedings for possession. The moratorium does not apply if the borrower does not cooperate with the lender or perpetuates a fraud or a breach of his contract with the lender (other than a breach by way of arrears). Further if an alternative payment arrangement is agreed during possession proceedings, the proceedings must be put on hold while the borrower adheres to the payment arrangement.
High Court Decision
In the Fitzell case, the lender issued proceedings in 2009 for an order for possession of the borrowers’ home. The proceedings were adjourned from time to time due to continuing negotiations between the parties. In July 2011 the lender notified the borrowers of its MARP process pursuant to the Code and requested certain financial information from them.
On the basis of the information provided the lender concluded that the borrowers did not have sufficient income to meet an appropriate level of payment on the mortgage and issued a letter to them stating that it was not prepared to offer them a repayment arrangement and that it intended to progress the possession proceedings. The letter also stated that the MARP process did not apply to the borrowers’ as the possession proceedings had been initiated prior to the introduction of the Code and further stated that the borrowers did not have any right to appeal the decision.
Laffoy J ruled that the Code applied to all cases in arrears before 1 January 2011, regardless of when legal proceedings for possession were in fact instituted. Accordingly, the borrowers’ should have been afforded the right to appeal the decision of the lender in accordance with its MARP and the Code.
The judge further stated that where proceedings for possession of a primary residence are being pursued by way of enforcement of a mortgage to which the Code applies, the lender is under an obligation to demonstrate to the Court its compliance with the Code.
The decision is under appeal to the Supreme Court.
Contributed by Niamh Cacciato
