AN “AVALANCHE” of new home repossession court cases is anticipated, but banks cannot expect to have it all their own way in this recession “of historic proportions”, the master of the High Court has warned. Options other than repossession orders might be preferred by the courts.
Edmund Honohan said the number of repossession cases was increasing weekly and, because few cases to date appeared related to recent job losses, he expected an “avalanche” of new cases over the rest of this year and next.
As many homeowners represented themselves in court, he considered a need had arisen to share legal information with the public on possession applications.
Banks and lawyers should remember the courts had discretion whether to grant repossession orders, and the lender’s behaviour was a relevant factor that may determine the outcome, he said.
New market conditions demanded new legal solutions – “better still, solutions that are both legal and equitable” – and orders for repossession will not be made “as a matter of course”. In the illiquid property market of a recession, an interim regime protective of the long-term interest of borrower and lender might be substituted in place of a final repossession order.
In the case of subprime lenders, the courts may look carefully at the higher rates of interest chargeable and consider if such rates meant the lender accepted the risk of default or, at the very least, could be said to have agreed to share the risk with the borrower.
Other factors the court could consider were a failure to stress-test loan applications; a failure to require insurance cover for critical illness or unemployment; commissions paid on the transaction and the published profits of the lender.
The courts would also check that a subprime lender conformed to good general banking codes, including those now under discussion, on rescheduling and/or debt forgiveness. The courts would not accede to a lender’s demands in a case to send a strong message to other borrowers in difficulty. “That is no function of the law.”
Nor would the courts look kindly on lenders that made people travel to Dublin when local courts could deal with repossession applications.
Each case must be considered on its merits and while defaulters were not looked upon with much sympathy in the past, we were now going through a recession of historic proportions with “many, if not most” borrowers, not to blame for their arrears, he said.
The number of repossession cases was increasing weekly, with an emerging pattern of about 80/20 between subprime lenders and high-street banks. In virtually all cases before him since October last, the mortgage arrears were already in excess of nine months when proceedings were initiated.
While high-street banks had fewer cases and might be considered to be acting with “greater forbearance”, the subprime claims appeared to consist of remortgages of loans advanced by the main banks, often coupled with personal credit facilities.
He said in the present climate of virtually no house sales, unless there was credible evidence a sale might be on the cards in the foreseeable future, there was “no good reason” to give immediate vacant possession.
As a matter of law, the lender did not have to have a vacant possession before they could sell, he noted. If a lender got possession but did not sell promptly, they could face liability to the mortgagor for avoidable dilapidation of the property and could also lose the right to seek a money judgment for the original debt after any eventual sale of the property.
While there may be grounds in law for granting an order for repossession, there may also be grounds in equity for refusing it, he said.
Mr Honohan, who as master deals with procedural court applications, was delivering judgment on an application by GE Capital Woodchester Home Loans Ltd for an order for vacant possession against Patrick and Paula Connolly over their home in Waterford.
He said the company told the court it wanted to sell the house because of mortgage default but the court needed “facts” to decide if this was a suitable case for a repossession order. In this case, he was given little to go on.
He believed the case should be remitted to the Circuit Court and adjourned the application to allow lawyers to take instructions on that as he was only empowered to remit the matter on consent.
Housing and homeless charity Focus Ireland says it shares Mr Honohan’s concerns. It has also expressed concern for people living in rented accommodation.
“No one should become homeless because of the recession, no matter what type of accommodation they are currently living in, be it rented or as a mortgage holder,” Joyce Loughnan, chief executive of Focus Ireland said.
Many families and single people living in rented accommodation “are under severe pressure,” she added.
Focus urged the Government to take action to protect those in the private rented sector. This would include speeding up assessment for payment of rent subsidy and introducing a time period to reassess how rent could be paid.
