Mortgage Arrears: The Government’s plans

The Programme for Government sets out a series of measures to try and tackle the mortgage arrears problem.  These planned measures seek to build on the current insolvency arrangements and introduce changes to how cases are handled.

STATISTICS – MORTGAGE ARREARS 

• 120,447 principal dwelling houses (PDH) were classified as restructured at the end of March 2016, of which 87% were meeting the conditions of the restructuring arrangement.
• 85,989 mortgage accounts of PDH’s were in arrears at the end of Q1 2016.
• 59,696 mortgage accounts of PDH’s were in arrears over 90 days at the end of March 2016.

CURRENT ARRANGEMENTS

Code of Conduct

• The Code of Conduct on Mortgage Arrears sets out how Lenders must treat borrowers in or facing mortgage arrears. The code applies to a borrower’s primary residence and not investment properties. A primary residence is defined as:-
  • the residential property which the borrower occupies as his/her primary residence in the State, or
  • a residential property which is the only residential property in the State owned by the borrower.

Court Procedure

• Where a property comprises the principal private residence of a borrower the Land and Conveyancing Law Reform Act 2013 provides for such cases to be heard before the Circuit Court.
• Pursuant to section 2 of the Land and Conveyancing Law Reform Act 2013 a borrower is entitled to seek an adjournment of court proceedings for a period not exceeding 2 months to enable a borrower to:-
  • consult with a personal insolvency practitioner with a view to the making of a proposal for a personal insolvency arrangement, and
  • where appropriate, to instruct the personal insolvency practitioner to make a proposal for a personal insolvency arrangement under the Personal Insolvency Act 2012 (“the 2012 Act”).

Personal Insolvency (Amendment) Act 2015

• The Personal Insolvency (Amendment) Act 2015 (“the 2015 Act”) allows for a borrower to challenge a secured creditor in court should it reject a borrower’s personal insolvency proposal, and provided certain eligibility criteria are met by the borrower.  A court may make an order confirming the coming into effect of the proposed personal insolvency arrangement, only where it is satisfied with certain criteria provided for in the 2015 Act.

PLANS IN PROGRAMME FOR GOVERNMENT

New National Service

• Establish a new national service to standardise the supports available to borrowers in mortgage arrears, with power and resources needed to advise, assess, negotiate and recommend solutions.
• Review the thresholds and the processes for Personal Insolvency Arrangements (including SMEs) and raise where appropriate.
• Establish a dedicated new court to sensitively and expeditiously handle mortgage arrears and other personal insolvency cases including, through imposing solutions, those recommended by the new service.
• Work with the Central Bank to amend the Code of Conduct on Mortgage Arrears to include an obligation on providers of mortgage credit to provide a range of sustainable arrears solutions.  This Code of Conduct will be put on a statutory basis.
• Fund an information campaign to encourage engagement in the new resolution process

THE IMPACT OF THE PROPOSALS

• The establishment of a new national service, to seek to centralise support and assistance to borrowers, together with a dedicated new court, should help to streamline the arrears process and make it more manageable for parties to navigate and for cases to be dealt with.
• The placing of the code on a statutory footing would be an interesting development.  The Supreme court case of Irish Life & Permanent -v- Dunne found that “…where the breach of the code involves a failure by a lender to abide by the moratorium referred to in the code, but in no other case, non-compliance with the code affects, as a matter of law, a relevant lender’s entitlement to obtain an order for possession”.  The introduction of appropriate legislation would give the courts a role in assessing whether the code has been complied, and not just the provision on moratorium.
• It was always the case that the remaining mortgage arrears cases that have not been restructured would present the biggest challenge to overcome, as such cases are typically those in long term arrears.  It would appear that any such sustainable arrears solutions would have to balance any proposed level of write down which this may involve for Lenders.  It remains to be seen as to what view the court may take on being asked to consider financial aspects of cases, rather than simply matters of law, and the role it may take in imposing solutions on parties.

For further information on this topic, please contact Brendan Sharkey on bsharkey@reddycharlton.ie