Fianna Fáil Finance Spokesperson Michael McGrath has called on the government to bring in emergency legislation to bolster the Code of Conduct on Mortgage Arrears as a defence for borrowers facing repossession proceedings after a major loophole was exposed by a Supreme Court decision.
The central question of the Supreme Court judgment last May in the Irish Life & Permanent (ILP) & Dunne Case, and the ILP & Dunphy case, was whether non-compliance with the Code of Conduct on Mortgage Arrears affects a lenders entitlement to obtain a repossession order. The Supreme Court held that, although compliance with the Code is mandatory for a lender, specific legislation would be required to prevent lenders from repossessing homes where the lender has failed to comply with the Code.
Deputy McGrath stated, “It is absurd that a lender is legally obliged as a matter of law to comply with the Code, but is still entitled to a repossession order where they have flouted the provisions of the Code. The Code of Conduct on Mortgage Arrears was designed to provide essential protections to homeowners struggling to stay in their family home but it is now essentially redundant as a barrier to home repossessions. For example, the Code requires a lender to make ‘every reasonable effort’ to agree an alternative arrangement with a borrower before initiating repossession proceedings, but a Court can no longer use this as a reason for refusing a repossession order.
“The fact that a lender would have to answer to the Central Bank for any significant breach of the Code is of no comfort whatsoever to a family that has lost their home as a result of a lender failing to comply with the Code. Emergency legislation to prevent an unscrupulous lender from repossessing family homes in contravention of the provisions of the Code should have been introduced as soon as the courts identified this loophole in May. It is remarkable that the Government failed to introduce such legislation before the Oireachtas recess. I am now calling on them to introduce the necessary emergency legislation immediately when the Oireachtas resumes; Fianna Fáil will publish its own legislation if the Government fails to do so.
“Recent statistics have shown that the number of court applications for the repossession of family homes increased by 16% in the second quarter of this year alone. The fact that lenders no longer have to wait until they have complied with the Code of Conduct on Mortgage Arrears could lead to a further massive increase in the number of home repossession cases before the courts, unless emergency legislation is increased to close this loophole.”
The number of cases initiated in the Circuit Court for the repossession of principal dwelling houses rose by 16% from Quarter 1 to Quarter 2 2015, from 1,278 to 1,486.
The Supreme Court judgment (Irish Life and Permanent plc -v- Dunne & Irish Life and Permanent plc -v- Dunphy  IESC 46) was delivered on 15th May 2015.
The Supreme Court noted that the Code of Conduct on Mortgage Arrears is not deemed by current legislation to be an implied term in the agreement between a homeowner and their lender.
It held that the only circumstances where the courts could use the Code as a grounds to not grant a repossession order was where a lender sought repossession while “entirely ignoring” the moratorium period provisions of the Code. Otherwise, non-compliance with the Code does not a lender’s entitlement to seek repossession of a home.
The Supreme Court held that the courts had not been given any general jurisdiction to consider whether the actions of a lender might be considered to be reasonable or fair. In his judgment on behalf of the Supreme Court, Mr. Justice Clark stated: “If it is regarded, as a matter of policy, that the law governing the circumstances in which financial institutions may be entitled to possession is too heavily weighted in favour of those financial institutions then it is, in accordance with the separation of powers, a matter for the Oireachtas to recalibrate those laws. No such formal recalibration has yet taken place.”