If vacant possession is required for the purpose of a sale and the property is not surrendered or possession cannot be obtained peaceably, then a court order for possession will be required. The mortgagee will invariably have a right to possession of the secured property under the mortgage deed where there has been a default. However, the mortgagee itself would breach criminal law if it took forceful possession of the secured property.
A court order for possession is a declaration by a court of the mortgagee’s entitlements and will order that the mortgagor and others in possession of the secured property deliver it up to the mortgagee. If the mortgagor does not obey the order, there are a number of means of enforcement. They include the physical taking of the property and dispossession of the mortgagor by the sheriff or County Registrar, by force, if necessary. See our chapters on enforcement of court orders for possession.
It is possible to apply for any one or more of an order for possession, a well charging order, an order for sale and an order for accounts and enquiries in mortgage proceedings. The practice of the Irish courts is to grant an order for possession for the purpose of a sale of the secured property “out of court”. This is a private sale by the mortgagee under the power of sale contained or implied on the mortgage deed. The sale is not usually under the court’s supervision.
Court-supervised sales are possible, but they are usually only granted where there is no right of sale in the mortgage deed or in other exceptional circumstances. See our chapter on court sales.
Mortgages signed after the 2009 law reforms commenced into law, are subject to that legilslation. A court order both for possession and consenting to the exercise of the power of sale (out of court) will generally be required A property may be surrendered under certain conditions. It is not possible to vary the new rules in mortgage deeds securing housing loans. See our chapter on the 2009 law reforms.
Enforcing Possession I
Once the power of sale under a mortgage has arisen and become exercisable, legal proceedings may be required to recover possession. Under some unregistered title mortgages, the right to possession may arise irrespective of default under the mortgage. The unregistered title legal mortgagee has an inherent right to possession which may be postponed under the mortgage deed until there has been a default. See our chapter on the right to possession.
In the case of the registered title, there is a no inherent right to possession because the mortgagee has a legal charge (which for all other practical purposes is the same as a mortgage). The registered title charge usually has a clause giving the mortgagee a right to take possession on default (or otherwise) and the Irish Courts have decided this is sufficient to allow a mortgagee to take peaceful possession.
In the case of registered property, the mortgagee’s title must be registered in order to have the right of a mortgagee at law. In the case of unregistered title, it is enough that the mortgage deed has been signed. Registration in the Registry of Deeds is relevant in relation to entitlement to the sale proceeds.
Enforcing Possession II
Because of the lack of an inherent right to possession, there is a special procedure for the holder of a legal charge (effectively the mortgagee) to apply by way of a summary (short / simplified) application for a court order for possession, where the principal sum has become due. The court has the discretion to grant the order if it sees fit.
The courts have decided that the special registered title procedure does not give the courts discretion to refuse consent on the basis of discretionary or sympathetic factors. The courts treat these applications for possession in much the same manner as applications for possession in the case of unregistered title.
The usual court order sought is an order for possession for the purpose of sale out of court. Therefore, the power of sale will generally have to have arisen and become exercisable. The regulatory requirements of the Code on Mortgage Arrears must first be complied with in the case of the borrower’s principal residence
Nature of Legal Proceedings
The mortgagee will be entitled to an order for possession for a sale, provided that
- the loan monies have been advanced and are owed
- the mortgage or charge is validly in place;
- it is entitled to the mortgage or charge;
- the entitlement to possession and sale has arisen under the mortgage deed and the loan agreement, and
- the relevant procedures have been followed.
The strict legal position is that the mortgagee is entitled to an order for possession for sale, provided it can prove the above conditions apply. The courts do not have power to completely refuse an order because ultimately, this is the mortgagee’s property entitlement. However, the courts do exercise a discretion, particularly in owner-occupier cases, to adjourn and suspend applications for possession orders.
Discretion of Courts
The legislation on possession under a mortgage is the same in residential and commercial property cases, owner-occupier cases, and investment cases. This is the case because the 19th Century legislation, which remains unchanged for 128 years until the 2009 law reforms become effective, makes no distinction. However, the impact of possession on the mortgagor is obviously much more acute when his home is at stake than in the case of an investment property. In the absence of the law being modernised, the courts have exercised an inherent discretionary power to adjourn proceedings for possession.
There are different views as to the extent to which a court has the discretion to suspend or adjourn an application for possession. Irrespective of the differences in opinion as to the extent of this power, the courts have and do adjourn applications for court orders for possession in order to afford the mortgagor the opportunity to find the means to pay-off the mortgage, it there is a reasonable prospect of this happening.
In addition, the courts have granted considerable time to mortgagors to relieve hardship, even if there is no prospect of payment. This discretionary power is particularly likely to be exercised in the case of residential property which is the mortgagor’s home.
The High Court and Circuit Court rules set out the respective court procedures and requirements in each court for a claim for possession of the property under a mortgage. Any mortgage possession claim may be started in the High Court. However, where the claim could be brought in the Circuit Court, the mortgagee may be penalised in costs for having proceeded in the more senior court. Housing loan applications must be brought in the Circuit Court.
The application is generally by way of a summary procedure. The applications in both courts may be entirely by written documents and affidavits. Most of the matters required to be proved are proved by documents. Cases come first before the Master in the High Court and the County Registrar in the Circuit Court. They review the papers and make initial procedural decisions and directions. The County Registrar can grant an order for possession in some cases under the new procedure.
The mortgagee must prove its entitlement to enforce. This will be done by affidavits (sworn confirmations) confirming the key facts and attaching the key documents. These will be usually accepted as sufficient unless challenged and contradicted by the mortgagor. In the vast majority of cases, there will be no serious dispute about the mortgagee’s legal entitlement to possession.
The procedure will not involve a trial with witnesses unless some fundamental issue such as whether a mortgage was entered or whether some invalidating factor applies. See our chapter on invalidation of mortgages. It is not necessary to positively prove that there are no invalidating factors such as undue influence etc. It is a matter for the mortgagor or other person affected to allege and show grounds on which the mortgage might be invalidated. The matter may then be referred to a more formal type of proceeding appropriate to disputes of facts.
An application for a possession order should be made against the persons who have a right to remain in occupation. This may include a non-owning spouse who is entitled to an interest in the secured property by having made contributions to the purchase price.
Where the secured property is or includes a family home the non-owning spouse may apply to be a party to the action if he or she is able to meet the mortgage liabilities. The court may require the spouse to be joined as a party. Where a mortgagee brings an action against the owning spouse in which it claims possession or sale of the home by virtue of the mortgage by reason of non-payment spouse of sums due the court has certain powers.
Where it appears to the court
- that the other spouse is capable of paying the arrears (other than arrears that do not constitute part of the periodical payments due under the mortgage) due under the mortgage within a reasonable time, and future periodical payments falling due under the mortgage;
- that the other spouse desires to pay such arrears and periodical payments; and;
- that it would in all the circumstances, having regard to the terms of the mortgage, the interests of the mortgagee and spouses, be just and equitable to do so,
the court may adjourn the proceedings for such period and on such terms as appear to the court to be just and equitable. In considering whether to adjourn the proceedings and, if so, for what period and on what terms they should be adjourned, the court shall have regard in particular to whether the spouse of the mortgagor or lessee has been informed (by or on behalf of the mortgagee or lessor or otherwise) of the non-payment of the sums in question.
Where all arrears (other than arrears of principal or interest or rent that do not constitute part of the periodical payments under the mortgage) of money due under the mortgage all the periodical payments due to date under the mortgage have been paid off and that the periodical payments subsequently falling due will continue to be paid, the court may by order declare. It may also declare that the breach of the mortgage conditions is deemed to be of no effect provided the above arrears are cleared off.
The mortgagee will generally be entitled to its costs. A court order for costs will be made if required. Alternatively, costs may be assessed. The mortgage is likely to provide that the cost of litigation is added to the debt secured by the mortgage.
The mortgagor may make an application to the court to direct that an account of the costs be taken. A mortgagor may dispute amounts on the basis that they were unreasonably incurred or unreasonable in amount.
Discretionary Protection of the Mortgagor
Until the recently passed 2009 law reforms come into force, there will be no statutory basis (Act of the Oireachtas) which provides power to a court to refuse or delay a court order for possession and sale in circumstances where the mortgagee can show that it is entitled to possession and to sell under the terms of the loan agreement and mortgage deed. Even when these reforms commence, they will not become fully applicable for several years because they will only apply to mortgages which post-date the commencement.
However, even in the absence of a statutory power, the Irish Courts have always offered significant flexibility and assistance to borrowers in applications for possession and /or sale. In practice, the courts will grant adjournments and stay orders where there is any prospect of an arrangement being made. Even where there is no prospect of an arrangement, some breathing space will be given to reduce the harshness of the strict legal position on personal borrowers, particularly where the application relates to the borrower’s dwelling house.
There has been a debate about the source and extent of the courts’ powers, in the absence of a statutory power. Formerly, up to the late 19th Century, there were separate courts of law and courts of equity. Courts of law enforced strict legal rules in accordance their terms such a contract, mortgage deeds etc. The Courts of Equity offered more flexibility. They would make orders that contradicted the courts of law by making discretionary decisions based on principles of fairness and equity.
Mortgage law itself grew up in the context of the two types of court. The strict legal mortgage could entitle the mortgagee to keep ownership of the land if there was the slightest default. However, the Courts of Equity never allowed this strict position to prevail and the borrower’s right to pay off and redeem the mortgage was given effect to reflect the fact that the substance of the arrangement was a security arrangement. This important right is the equity of redemption and is the origin of the borrower’s equity (i.e. his interest in the property, net of the mortgage).
There was always a tension between the courts of law and courts of equity. The courts of equity and courts of law were merged over a hundred and thirty years ago so that all courts now apply both the rules of law and equity. The Act which merged the courts provided that where there was a conflict between the legal rules and the equitable rules, the equitable rules were to prevail.
There has always debate and divergence of views in relation to the scope for equitable rules to overrule legal rules. The predominant view is that equity can only apply to certain well-established types of case. Another view is that there is wider scope for equity to operate more generally.
De Facto Discretion
It is well established that equitable rules apply to equitable remedies. In the context of mortgage enforcement, this includes the power to complete an uncompleted mortgage (an equitable mortgage), the power to appoint a court receiver and certain flexible enforcement remedies (equitable execution). The right to possession under a legal mortgage is a legal right. Therefore, it is more controversial and less clear-cut that, that equitable principles can be applied to withhold strict legal rights.
The view has been expressed by a number of legal authorities that there is a broad right to give relief to a mortgagor where this is possible, despite the legal entitlement of the lender to an order for possession “as of right”. The traditional role of equity has been invoked as a justification. The court rules which allow the grant of an order for possession for the purpose of sale have been accepted in older cases as being subject to the court’s discretion.
Irrespective of the legal or equitable basis, it is clear that Irish courts have and do exercise a discretion in favour of mortgagors. The current financial crisis has made the issue one of great public importance and interest. On the one hand, there is an understandable desire to minimise a wave of mortgage repossessions where borrowers have got into financial difficulty because of the unexpected economic conditions. On the other hand, there is a recognition that contract and property rights must be enforced and that credit institutions must themselves be able to assert their right in order to protect their assets.
2009 Law Reforms
The 2009 reforms have introduced a statutory basis for courts to adjourn or suspend a possession order application for the first time. The legislation provides that 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 or at any time before enforcement and implementation of the order.
The court may make any one or more of the following;
- 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.
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. Any order or its terms or conditions may be varied or revoked.
The statutory provisions may be and usually are excluded in mortgages other than housing loan mortgages.
Practice under Equivalent English Power I
There has been legislation in England and Northern Ireland for over 35 years giving courts power to adjourn and suspend repossession cases. The following looks at the way this power has been used, given the likelihood that Irish Courts will apply similar principles.
The Administration of Justice Act allows a court to adjourn proceedings for possession of under a mortgage of a dwelling house. The court may adjourn the proceedings if it appears that by exercising the powers, the mortgagor is likely to be able within a reasonable period to pay the sums due under the mortgage or to remedy the default concerned.
Under the English legislation, the court looks at whether the mortgagor will be able to pay off the current instalments (including arrears) over a reasonable period. The court has the power to disregard the accelerated payment obligation arising from the default. The following practical matters are relevant considerations in determining what is a reasonable period. Ultimately, the exercise of the powers is discretionary and each case is different.
- how much the borrower can pay now and in the future;
- what is the reason for the arrears;
- whether the reason is likely to last;
- how much of the little time is left on the mortgage period;
- what type of mortgages involved;
- the value and future value of the security;
- the risk to the value of the security:
- whether it is reasonable to expect a lender to recover interest over the term within a shorter period;
- whether it is reasonable for a lender to recover interest over a longer period by extending the repayment period;
- whether it is reasonable to expect the lender to capitalise interest.
An adjournment may be appropriate, where there is temporary illness or unemployment.
The court only exercises power if it appears the mortgagor is likely to be able to pay the amounts due within a reasonable period together with interest on those amounts.
Practice under Equivalent English Power II
The court may suspend or adjourn a possession claim if the prospects of a sale at a higher price would be more favourable with the mortgagor in occupation than on the basis of a repossessed property. The court should consider the possibility of a sale being achieved if enforcement of possession is “stayed” (suspended) subject to certain conditions.
The suspension may be subject to such conditions as the court considers appropriate. The court should take account of the value of the security, the size of the debt and whether any delay in the sale would reduce the extent to which the mortgage debt would remain secured. The court should take account of the value of the security compared with the size of the debt.
If the sale proceeds would not discharge the whole mortgage money the court will not generally exercise its powers unless other monies will be available to pay the balance. If the court decides to suspend the sale, it should identify the relevant period. The court may allow the owner to remain in possession to allow the owner to sell. The court must be satisfied that the presence of the owner will enhance the value of the property and that the mortgagor will co-operate in effecting the sale
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