Post-2009 Act Mortgages

Overview

The bulk of the Land Law and Conveyancing Reform Act came into force on 1st December 2009. It applies to mortgages / charges executed on and after that date.

The Act represented the most significant change in property and mortgage law in over 125 years. It was not linked to the financial crisis.  A number of late amendments were introduced into the Act, which arose from the financial crisis. The 2009 law reforms apply to mortgages signed after the Act commenced.

Prior to the 2009 law reforms, some of the “default” mortgagee’s rights could be modified by the terms of the mortgage deed, so as to be more favourable to the mortgagee. 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 default rules cannot be reduced, irrespective of what the mortgage deed provides.


Court Orders for Possession and Sale

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 is not generally required under the earlier 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.

A mortgagee is not allowed to take possession of secured property without a court order. This is the position, unless the mortgagor 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.


Power of Sale

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 of 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. Twenty-eight 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, twenty-eight 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 under which discretionary adjournments or suspensions lacked a clear legal basis.


Abandoned Property

It is possible to apply to the District Court in the case of abandoned property to protect the security. This is separate to an application for the purpose of sale. If there are reasonable grounds for believing that the mortgagor has abandoned the property and urgent steps are necessary to prevent deterioration, damage or entry by trespassers or unauthorised persons, the mortgagee may apply to the District Court for an order authorising possession.

The District Court order may be granted on such terms as the court decides. It may state the period during which the mortgagee may retain possession, and it may specify works which may be required to protect the property. It may specify the costs and that they may be added to the mortgage debt. The mortgagee does not have the duties of a mortgagee in possession to account “strictly” during the period in possession.


Discretionary Powers of Court I

In an application for payment, possession or an application for sale or a joint application for sale and possession, the court will have discretionary powers to adjourn or suspend the application or order for possession or sale.  These powers are now 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 have an inherent discretion and power to postpone or refuse an order.

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 lodgement 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.

Discretionary Powers of Court II

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.

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.


Obligations on Sale

The mortgagee must ensure, in so far as reasonably practicable, that the mortgaged property is sold for the best price reasonably obtainable. Within twenty-eight 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 power of sale being improperly exercised has a right to compensation against the person exercising the power.

The proceeds of the 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.


Receiver

Where any of the above conditions that apply to the exercise of the power of sale are applicable, the mortgagee will (still) be able to appoint a receiver of the income of the property in writing. The receiver may demand and receive all income from the property. He may exercise any powers delegated by the mortgagee under the terms of the mortgage deed. The receiver may insure the property with comprehensive buildings cover.

The receiver may retain money for remuneration and in satisfaction of costs.   The commission is at a rate prescribed by Ministerial Order. The receiver must apply money received as follows:

  • in the discharge of rates, ground rents, taxes and other outgoings of the property;
  • in payment of interest and all sums which have priority to the mortgage under which the receiver was appointed;
  • in payment of the receiver’s commission;
  • in payment of insurance;
  • In payment of the cost of repairs;
  • in paying interest due on the principal sum under the mortgage;
  • in payment of the principal sum, if directed by the mortgagee;
  • the residue to be paid to the person who but for a receivership would have been entitled to the income of the property.

Leasing I

A mortgagor is entitled to lease the mortgaged property, with the consent of the mortgagee. This consent is not to be unreasonably withheld. A lease made without consent may be set aside by a mortgagee, who proves that the lessee had actual knowledge of the mortgage and that the grant of the lease prejudiced it.

A mortgagee, or a receiver may lease the property, provided that it is for the purpose of preserving the land, realising the security or raising income to pay interest to reduce the debt. It may also lease if this is otherwise an appropriate use of the land pending sale if the mortgagor consents or if the court makes an order permitting the lease. This increased power of leasing will apply to new mortgages. It will not apply to home loans.

A lease granted by a mortgagor, mortgagee or a receiver must reserve the best rent reasonably obtainable, taking account of any premium and the relevant circumstances. It must be on the best terms reasonably available in accordance with good commercial practice. A lease which fails to comply with these requirements is void.


Leasing II

The mortgagor must within one month of making the lease, deliver a copy to the mortgagee. Failure to do so does not invalidate the lease. Where a capital sum is paid by the lessee, then the capital sum, or so much of it as is required for that purpose, is to be applied in (part) discharge of the debt.  Whether or not the date for redemption has arisen, the mortgagee is to apply it, as if was the proceeds of a sale.

A mortgagor, mortgagee in possession, or a receiver may surrender a lease of the whole or part of the secured property. This is only permitted if it is for the purpose of granting a new lease under the above powers or is authorised by the mortgage. The term of the new lease is to be not less than the unexpired term of the surrendered lease. The rent is not to be less than the rent that would have been payable under the surrendered lease.

A surrender in return for payment is void unless the consent of the mortgagee is obtained and certain other conditions are complied with.


Foreclosure, Consolidation and Redemption

Foreclosure, which is a common method of mortgage enforcement in other jurisdictions, was rarely, if ever available in Ireland and has been abolished by the 2009 law reforms. Foreclosure involves a court application to extinguish the mortgagee’s equity i.e. its right to redeem.

The right of consolidation is abolished for housing loans. A mortgagor is entitled to redeem any housing loan mortgage without having to pay money due under any other mortgage, irrespective of whether that mortgage is of the same or other property.


Insurance

The default power to insure has been modernised. There is power to insure against loss and damage from fire, flood, tempest and other risks commonly covered by a policy of comprehensive insurance. Most mortgage deeds make specific provision so that the default power will rarely be necessary.

The mortgagee may insure any building or any other insurable property comprised in a security. This may be for the full reinstatement cost and may be against the usual damage, destruction, and other risks commonly insured.  The cost is deemed to be part of the mortgage debt. A mortgagee may require money received for insurance to be applied by the mortgagee in making good loss or damage or towards discharge of the mortgage debt.


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