Mortgagee Powers

Enforcement Options for Mortgagee

A mortgagee is entitled to exercise all rights at the same time. It can, for example, take court action for a judgment for payment of monies due and also take the action for possession of the secured property. The borrower is personally liable for the loan amount unless the mortgage or loan offer states that it is limited to recourse to the property only.

A mortgagee who sells the property after a foreclosure cannot rely on the borrower’s personal covenants. However, foreclosure is rarely if ever granted in Ireland and has been abolished for new mortgages by the 2009 law reforms.

The mortgagee is most likely to sue in a personal claim, only where there is a shortfall on the sale of the security. If the mortgagee sues on the debt and the mortgagee satisfies the judgment he is entitled to have the security returned.


Pre and Post 2009 Act Security

The first part of this chapter deals with mortgages and charges created prior to 1st December 2009. This includes the vast majority of mortgage that fell into arrears in the financial crisis. The  latter part of this chapter covers mortgages granted after that date, which are subject to the Land and Conveyancing Law Reform Act, 2009.

The Conveyancing Act, 1881 as amended, provides for the default statutory enforcement powers of the mortgagee. There is a statutory power to appoint a receiver and a statutory power of sale. Some mortgages rely only on the Statutory power. Nearly all remove the limitations and conditions on the exercise of the statutory power.

Most expand considerably on the mortgagee’s statutory powers. A combination of modified and enhanced statutory powers and additional contractual powers are commonly given to the mortgagee.


Security

A loan offer for the purchase of real property will generally require a first legal charge or mortgage over the property concerned. If the mortgage has not been created for whatever reason, then the bank has a contractual right to have it completed. The loan offer constitutes an equitable mortgage by reason of the agreement to provide the mortgage.

The mortgagee has the right to the title deeds. The mortgagor is entitled to protect the mortgaged property from deterioration or diminution in value. A mortgagee can, for example, pay insurance to keep the insurance policy in place. It may pay an apartment service charge in order to remove the risk of the property lease being forfeited. It can take possession to prevent vandalism. A mortgagee can spend money to preserve the property. See our chapter on protection on security.

In a mortgage by deed, a mortgagee has the power to insure against loss and damage of the property. Premiums are a charge on the property as an addition to the mortgage money with the same priority. Interest is payable on them at the same rate.  This power can be changed by the terms of the mortgage deed.

Money received under an insurance policy effected by law must be applied by the mortgagor in making good the loss or damage. The mortgagee may require that all sums received under such insurance be applied towards discharge of the mortgage money.


Enforcement of the Mortgage

When loan monies become due, the mortgagee is generally entitled to pursue whatever remedies it chooses. A lender is not bound to pursue the easiest and cheapest remedy.

The mortgagee can enforce a mortgage against the mortgagor personally and /or by way of enforcement of the security. Security can be enforced by any of the following means;

  • appointment of a receiver;
  • taking possession peacefully and sale out of court,
  • court order for possession and sale out of court,
  • court order for sale,

The court order for sale and foreclosure are rarely used or necessary. A court order for sale is generally only required where the mortgage has not been created or properly created. A foreclosure action is a declaration by the court that the mortgagor’s rights to the property are extinguished. It was rarely if ever used in Ireland and has been abolished by the 2009 law reforms.


Power of Sale

The most common method of enforcement is the use of the mortgagor’s power of sale in the mortgage deed. It may or may not be necessary to obtain a court order to obtain possession (e.g. in the case of a leased investment property). If possession is necessary, it may be possible to obtain possession peaceably.

The right to exercise the power of sale usually arises when there has been a default.  The full monies also become due on default and all personal and security rights can be enforced.

The Conveyancing Act specifies when the power of sale is exercisable, but this can be amended by the mortgage. This is usually done so that the powers may be exercised with minimum restrictions. For “housing loans” after the 2009 law reforms, the mandatory provisions in the legislation, including the requirement for court or mortgagor consent to the sale, cannot be excluded.


Statutory Powers (Older Mortgages)

Section 19 provides that the statutory powers of enforcement arise when the mortgage money has become due.

19-(1) A mortgagee, where the mortgage is made by deed, shall, by virtue of this Act, have the following powers, to the like extent as if they had been in terms conferred by the mortgage deed, but not further (namely):

(i) A power, when the mortgage money has become due, to sell, or to concur with any other person in- selling, the mortgaged property, or any part thereof……

(iii) A power, when the mortgage money has become: due, to appoint a receiver of the income of the mortgaged property….”

19(3) This section applies only if and as far as a contrary intention is not expressed in the mortgage deed, and shall have effect subject to the terms of .the mortgage deed and to the provisions therein contained.


Conditions for Exercise (Older Mortgages)

Section 20 provides that the power of sale may be exercised when one of three conditions are satisfied. However, this restriction may be removed, and this is almost invariably done.

20. A mortgagee shall not exercise the power of sale conferred by this Act unless and until-

(i) Notice requiring payment of the mortgage money has been served on the mortgagor .or one of several mortgagors, and default has been made -in payment of the mortgage money,

or of part thereof, for three months after such service ; or

(ii) Some interest under the mortgage is in arrear and unpaid for two months after becoming due ; or

(iii) There has been a breach of some provision contained in the mortgage deed or in this Act, and on the part of the mortgagor, or of some person concurring in making the mortgage, to be observed or performed, other than and besides a covenant for payment of the mortgage money or interest thereon


Enforcement (Older Mortgages)

The above statutory provisions as modified or contractual provisions, generally provide that the mortgage / charge  is enforceable when the secured monies fall due. See the previous part in relation to the covenant to pay. This will usually be expressed to be on demand. Reference must be had to the mortgage deed and the underlying loan agreement, in order to vouch that the lender is entitled to demand and that the underlying loan monies have become due.

Some mortgages provide the loan monies are deemed due for the purposes of the Conveyancing Acts, but not otherwise from the date of execution. This clause has gained significance in the context of the recent case law mentioned below in relation to the repeal of the Conveyancing Act. It is also relevant in cases where a demand may not be possible, such as where the borrower is dead or has been struck off the Register of Companies.

Sometimes, a certain a number of days’ notice is required for the demand. More commonly, the sums due are immediately payable on demand. This may be expressly or impliedly subject to the terms of the loan agreement.

Where there is a floating charge, typically in a corporate all assets security document, it will be provided that on events of default the floating charge will crystallise and become a fixed charge on assets within its scope.


Effect of Repeals I

The Conveyancing Act, 1881 was replaced by the 2009 Act, for charges executed after 1st December 2009. The 1881 Act provided certain key statutory rights for mortgagees. These included, in particular, a right of sale and a statutory right to appoint a receiver.  The provision in respect of the statutory power of sale provided that on completion of the sale, all the interests of lower ranking charge holders and the owner were converted into an interest in the sale proceeds.  This mechanism effectively destroys the equity of redemption and enables the security holder to sell freely from lower ranking charges.

In Start Mortgages Limited & others v Gunn & others [2011] IEHC 275, decided in July 2011 and which comprised a number of linked sample cases, a critical gap in the legislative scheme was exposed. The 2009 Act made provision for charges executed after 1st December 2009. Not surprisingly, the vast majority of troubled security dates from prior to this date.  The cases turned on the Interpretation Act, 2005 and how it applied in the context of the repeals made by the 2009 Act.

The particular issue to be determined in the cases related to the right of a registered charge holder to apply under a summary procedure for possession under a provision in the Registration of Title Act, which had been repealed by the 2009 Act.  The Court held that unless the charge holder had made a demand for all monies due prior to the commencement of the 2009 Act, its rights under the repealed legislation were not preserved. The judgment, on the face of it, has the potential to undermine a significant percentage of all real property security in the State.  The gap has not yet been plugged.


Effect of Repeals II

In Kavanagh & others v Lynch & others [2011] IEHC 348, the High Court held that even if the 1881 Conveyancing Act provisions had been repealed, a mortgage deed could incorporate contractually the power of sale and power to appoint a receiver set out in the repealed statute.  Many mortgages refer to the relevant sections of the Conveyancing Act and almost invariably modify them to remove the restrictions on enforcement.  Ms Justice Laffoy reasoned that the statutory terms were incorporated contractually.

In June 2012. In EBS –v- Eamon Gillespie, 21st June 2012 there was a summary application for possession under Section 62(7) of the 1964 Act.  In that case, it was provided (as is the case in some, but not most forms of charge) that for the purpose of the power of sale, the monies were deemed to become due on execution. Laffoy, J held that on the wording, the “relevant rights” had accrued prior to the repeals effected by the Land and Conveyancing Law Reform Act 2009. Laffoy, J also held that a disputed demand made before December 2009 was in any event valid so that the former ground was not essential to the decision.

In McEnery v Sheahan 2012 [IEHC] 31 Mr Justice Feeney held that a mortgagee created before 1st December 2009, acquired the right under the 1881 Act to appoint a receiver “at the time the mortgage was created”, and that such right survives the repeal of the 1881 Act. Mr Justice Feeney distinguished this case from the Gunn case, on the basis that the right of a mortgagee to apply for possession of registered land in a summary manner, which was in issue in Start Mortgages, is a procedural right, whereas the right to appoint a receiver is a substantive right

The Land and Conveyancing Law Reform Act, 2013 remedied the apparent loophole. The Act applies to a mortgage created prior to 1st December 2009. It does not apply to proceedings initiated before the coming into operation of this section.

Section 1(2) provides that

“As respects a mortgage to which this section applies, [sections 2 and 18 to 24 of the Conveyancing Act 1881, sections 3, 4 and 5 of the Conveyancing Act 1911 and section 62(3), (7) and (8) of the Act of 1964] apply and may be invoked or exercised by any person as if those provisions had not been repealed by section 8(3) and Schedule 2 of the Act of 2009.


Enforcement Events

Some mortgage deeds and debentures set out events of enforcement, whether by that name or otherwise. These are events which entitle the lender to enforce the security. Typically, the entire loan monies become due or may be demanded at the lender’s option and the lender may exercise its enforcement rights. They are typically as follows

  • borrower fails to pay secured monies when due;
  • borrower commits a breach of the terms of the loan agreement with the lender believes is not capable of being remedied within a reasonable time;
  • any representation or warranty made to the lender turns out to be untrue;
  • any other lender is entitled to enforce against the borrower;
  • another receiver is appointed to any part of the borrower’s assets;
  • borrower becomes bankrupt or in the case of a company, insolvent

The may include where

  • the secured properly is compulsorily acquired, damaged or destroyed;
  • the borrower dies.

Post-2009 Act Mortgages  Overview

The bulk of the Land Law and Conveyancing Reform Act came into force on 1st December 2009. The Act represented the most significant change in property and mortgage law in over 125 years. The Act was the result of several years of planning and was not linked to the financial crisis.  The 2009 law reforms apply to mortgages signed after the Act commenced.

Security over land may be created by way of a charge only.

89.— (1) A legal mortgage of land may only be created by a charge by deed and such a charge, unless the context requires otherwise, is referred to in this Part as a “mortgage”; and “mortgagor” and “mortgagee” shall be read accordingly.

A charge is equivalent to a mortgage but does transfer an estate in land or any inherent right to possession

90.— (1) Subject to this Part, where a mortgage is created after the commencement of this Chapter—

(a) the mortgagor has the same powers and rights and the same protection at law and in equity as the mortgagor would have been entitled to,

(b) the mortgagee has the same obligations, powers and rights as the mortgagee would have had if the mortgagee’s security had been created by a conveyance before that commencement of the legal estate or interest in the land of the mortgagor.


Modification of Statutory Default

Prior to the 2009 law reforms, the details of the “default” mortgagee’s rights could be modified, so as to be more favourable to the mortgagee, by the terms of the mortgage deed. After the 2009 law reforms, this is possible only in the case of mortgage loans, other than housing loans. In the case of housing loans, the mortgagor’s rights under the below default rules cannot be reduced, irrespective of what the mortgage deed provides.

Non-Housing loan mortgages usually remove the below default positions as provided under the Act. A practical difficulty is that definition of a “housing loan” is far from clear. Many lenders have treated loans for investment properties as “housing loans”. This implies that the borrower is a consumer.

The judgment of Kelly J. in the case of AIB v Higgins, quoted at length elsewhere, has interpreted a consumer in a relatively narrow way.  Later cases have allowed for the possibility of a wider interpretation.


Default Rules on Possession and Sale I (Newer Mortgages)

A court order is necessary both for obtaining possession and for sale of the property. This is a significant change, as a court order is not necessarily required to obtain possession at present, although it is often necessary. A court order for sale was not generally required under the prior law, provided there is a power of sale in the mortgage deed. The court order for possession and sale can be applied for in a single court application.

Under the new rules, a mortgagee is not allowed to take possession of a property without a court order. This is the position, unless the mortgagor otherwise consents in writing, not less than seven days in advance. A mortgagee is able to apply to the court for possession, and the court may grant possession, if it thinks fit, on such terms and conditions as it sees fit.

A mortgagee in possession must take steps within a reasonable time to sell the property.  If this is not appropriate, he must lease the property and use the rent or other income to reduce the mortgage debt and interest. The power of sale can only be exercised for the purpose of protecting the property or realising the security.

Non-Housing loan mortgages executed after 1st December usually remove the above default position as provided by the 2009 Act.


Default Rules on Possession and Sale (Newer Mortgages) II

The power of sale applies where one of three conditions is satisfied:

  • notice requiring payment of the mortgage money has been served on the mortgagor and default has been made in the payment of the money or part of it for three months after service;
  • the mortgage is arrears and unpaid for two months after becoming due, and some interest under the mortgage is in arrears;
  • there has been a breach of the provisions in the mortgage deed on the part of the mortgagee other than payment of the mortgage money or interest

The above conditions are much the same as under the prior law. However further new provisions apply. 28 days’ notice in a prescribed format must first be served on the mortgagor warning of the possibility of a sale. The power of sale may not be exercised without a court order unless the mortgagor gives consent in writing at least seven days in advance. At any time, 28 days after notice, the mortgagee may apply to the court for an order authorising sale.

The court may, if it thinks fit, grant the application on such terms, if any, as it thinks fit. The application to the court for an order for possession and an order for sale may be made in a single application or separately. The court has discretionary powers to adjourn or suspend orders.  This new power changes the previous law by which discretionary adjournments or suspensions lacked a clear legal basis.

Non-Housing loan mortgages executed after 1st December usually remove the above default position as provided by the 2009 Act.


Discretionary Powers of Court (Newer Mortgages) I

In an application for payment, possession or an application for sale or a joint application for sale and possession, the court has discretionary powers to adjourn or suspend the application or order for possession or sale  Non-Housing loan mortgages executed after 1st December usually remove this default position as provided by the 2009 Act.

These powers are specifically granted by law and do not depend on the court exercising its inherent discretion to withhold an order. There has been a debate over whether and to what extent a mortgagee has an absolute entitlement to a court order for possession and/or sale or whether the courts had the discretion to postpone or refuse an order.

Where it appears that a mortgagor is likely to be able, within a reasonable time, to pay arrears, including interest due, under the mortgage or to remedy any breach of the agreement, a court may adjourn the proceedings or make an order. This may be done at any time before enforcement and implementation of the order.  Any one or more of the following orders may be made;

  • allow time for payment of the mortgage debt;
  • suspend the enforcement or implementation;
  • postpone the delivery of possession;
  • suspend the order for such period or periods as the court thinks reasonable;
  • if an order is suspended, the court may subsequently revive it.

Discretionary Powers of Court (Nwer Mortgages) II

Any adjournment, suspension or postponement may be made subject to such terms and conditions with regard to payment by the mortgagor of annual sums secured by the mortgage or remedying any breach as the court thinks fit. Any order or its terms or conditions may be varied or revoked by the Court later.Non-Housing loan mortgages executed after 1st December usually remove this default position as provided by the 2009 Act.

The court has the power to direct a sale on such terms as it sees fit. It may also, at its discretion, do any one or more of the following;

  • require lodgment of monies to meet the expenses of sale;
  • give directions in relation to costs and require the giving of security;
  • direct a sale without previously determining priorities;
  • give the conduct of the sale to a party;
  • make an order vesting the property in a purchaser or authorising a third party to do so.

Obligations on Sale (Newer Mortgages)

The mortgagee must ensure, in so far as reasonably practicable, that the mortgaged property is sold for the best price reasonably obtainable. Within 28 days after the sale, the mortgagee must serve a notice in the prescribed form on the mortgagor containing information in relation to the sale.

A purchaser from a mortgagee is protected, notwithstanding any defect in the way the sale took place. Any persons suffering loss as a consequence of the right not being properly exercised has a right of compensation against the person exercising the power.

The proceeds of sale must be paid as follow;

  • in the discharge of prior encumbrances (mortgages and charges) if any, to which the sale was subject;
  • payment of all charges, costs and expenses properly incurred by the mortgagee as an incident to the sale or any attempted sale;
  • in the discharge of the mortgage debt, interest, costs and other money (if any) due under the mortgage;
  • the balance, if any, to lower ranking mortgagees in the order or priority;
  • the balance to the mortgagor, if any.

The charges, cost and expenses include those incurred in recovering and receiving the money or security or in the conversion of the security into money as well as those of those incidental to the sale.

Non-Housing loan mortgages executed after 1st December usually remove this default position as provided by the 2009 Act.


References and Sources

Irish Texts

Breslin Banking law + Supplement     3rd Ed  2013

Mortgages Law & Practice     Maddox 2nd Ed            2017

NAMA Act 2009: A Reference Guide Raghallaigh, Kennedy, Whelan

Money Laundering & Anti-Terrorist Financing Act 2010

Financial & Emergency Provision Legislation Annotated      2011

Shelley & McGrath     National Asset Management Agency Act Annotated 2011

Dodd & Carroll            Law Relating to NAMA 2012  0

Ashe & Reid    Anti-Money Laundering: Risks, Governance & Compliance             2013

Johnston & Ors           Arthur Cox Banking Law Handbook               2007

Dr Mary Donnelly  The Law of Credit and Security, 2nd Ed, 2015

UK Texts

A Hudson The Law of Finance 2nd Ed (Sweet and Maxwell 2013)

Veil (Ed) European capital markets law (Hart Publishing 2013)

IG MacNeil An Introduction to the Law on Financial Investment 2nd Ed ( Hart Publishing 2012)

E Ferran Principles of Corporate Finance 2nd Ed ( OUP 2014)

Gullifer (ed) Goode and Gullifer on legal problems of credit and security (6th edn Sweet and Maxwell London 2017).

MA Clarke et al (eds) Commercial Law: Text, Cases and Materials (5th edn OUP Oxford 2017)

McKendrick (ed) Goode on commercial law (5th edn Penguin London 2017)

G McCormack Secured credit under English and American law (CUP Cambridge 2004)

L Gullifer and J Payne Corporate Finance (2nd edn Hart Oxford 2015)

D Sheehan The Principles of Personal Property Law (2nd edn Hart Oxford 2017)

Ross Cranston, Emilios Avgouleas, Kristin van Zwieten, Christopher Hare, and Theodor van Sante Principles of Banking Law 3rd Ed 2018

E.P. Ellinger, E. Lomnicka, and C. Hare Ellinger’s Modern Banking Law 5th Ed 2011

Andrew Haynes The Law Relating to International Banking  Bloomsbury Professional 2009

Charles Proctor Mann on the Legal Aspect of Money 7th Ed 2012

Charles Proctor The Law and Practice of International Banking 2nd Ed  2015

Sheelagh McCracken The Banker’s Remedy of Set-Off   2010 Bloomsbury Professional

Louise Gullifer, Jennifer Payne Banking & Financial Law 2018

Hubert Picarda QC The Law Relating to Receivers, Managers and Administrators 4th Ed  2006 5th Ed 2019

Lightman & Moss on the Law of Administrators and Receivers of Companies 6th Ed  Sweet & Maxwell 2017

Timothy N Parsons  Lingard’s Bank Security Documents 6th Ed 2015


References and Sources

Irish Texts

Breslin Banking law + Supplement     3rd Ed  2013

Mortgages Law & Practice     Maddox 2nd Ed            2017

NAMA Act 2009: A Reference Guide Raghallaigh, Kennedy, Whelan

Money Laundering & Anti-Terrorist Financing Act 2010

Financial & Emergency Provision Legislation Annotated      2011

Shelley & McGrath     National Asset Management Agency Act Annotated 2011

Dodd & Carroll            Law Relating to NAMA 2012  0

Ashe & Reid    Anti-Money Laundering: Risks, Governance & Compliance             2013

Johnston & Ors           Arthur Cox Banking Law Handbook               2007

Dr Mary Donnelly  The Law of Credit and Security, 2nd Ed, 2015

UK Texts

A Hudson The Law of Finance 2nd Ed (Sweet and Maxwell 2013)

Veil (Ed) European capital markets law (Hart Publishing 2013)

IG MacNeil An Introduction to the Law on Financial Investment 2nd Ed ( Hart Publishing 2012)

E Ferran Principles of Corporate Finance 2nd Ed ( OUP 2014)

Gullifer (ed) Goode and Gullifer on legal problems of credit and security (6th edn Sweet and Maxwell London 2017).

MA Clarke et al (eds) Commercial Law: Text, Cases and Materials (5th edn OUP Oxford 2017)

McKendrick (ed) Goode on commercial law (5th edn Penguin London 2017)

G McCormack Secured credit under English and American law (CUP Cambridge 2004)

L Gullifer and J Payne Corporate Finance (2nd edn Hart Oxford 2015)

D Sheehan The Principles of Personal Property Law (2nd edn Hart Oxford 2017)

Ross Cranston, Emilios Avgouleas, Kristin van Zwieten, Christopher Hare, and Theodor van Sante Principles of Banking Law 3rd Ed 2018

E.P. Ellinger, E. Lomnicka, and C. Hare Ellinger’s Modern Banking Law 5th Ed 2011

Andrew Haynes The Law Relating to International Banking  Bloomsbury Professional 2009

Charles Proctor Mann on the Legal Aspect of Money 7th Ed 2012

Charles Proctor The Law and Practice of International Banking 2nd Ed  2015

Sheelagh McCracken The Banker’s Remedy of Set-Off   2010 Bloomsbury Professional

Louise Gullifer, Jennifer Payne Banking & Financial Law 2018

Hubert Picarda QC The Law Relating to Receivers, Managers and Administrators 4th Ed  2006 5th Ed 2019

Lightman & Moss on the Law of Administrators and Receivers of Companies 6th Ed  Sweet & Maxwell 2017

Timothy N Parsons  Lingard’s Bank Security Documents 6th Ed 2015