Question: Is a bank required to comply with the Code of Conduct on Mortgage Arrears before it can take possession of my house?
A: The Financial Regulator’s revised Code of Conduct on Mortgage Arrears came into effect on 1 January 2011 and applies to borrowers who are in arrears on 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 (known as ‘MARP’) which embodies the five steps of the code. The five required steps are (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.
Once a borrower is classified as a MARP case, the code imposes a moratorium on the initiation by the lender of legal 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).
The High Court recently refused to grant a lender a possession order in circumstances where it had failed to adhere to the code. The case was Steptone Mortgage Funding Ltd v Fitzell (Unreported, High Court, 30 March 2012).
In the Fitzell case, the lender issued proceedings in 2009 for an order for possession of the borrowers’ home. The proceedings were adjourned due to continuing negotiations between the parties and, 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 make appropriate repayments on the mortgage and issued a letter stating that it was not prepared to offer them a repayment arrangement and that it intended to progress the legal proceedings for possession. The letter also stated that the MARP process did not apply to the borrowers, as the legal proceedings had been commenced prior to the introduction of the code and further stated that the borrowers did not have any right to appeal the decision.
The judge ruled that the code applied to all cases in arrears before 1 January 2011, regardless of when the legal proceedings for possession were in fact commenced. The judge also 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. If the lender fails to demonstrate its compliance with the code, the court may not order possession of the property.
This article provides an outline of the various options. Proper legal advice should be sought in all circumstances.
For further information, contact Philip Ryan, Partner in MacSweeney & Company Solicitors, Lismoyle House, Merchants Road, Galway on 091- 532 532 or firstname.lastname@example.org.