Numerous acts, regulations and practice directions govern the enforcement of residential mortgages which protect borrowers ("Mortgagors") and oblige lenders ("Mortgagees") to fulfil onerous obligations to enable them to enforce their security.
We are increasingly advising clients who are interested in acquiring books of Irish residential mortgages, investing in Irish covered bonds or investing in Irish RMBS. This Briefing contains a summary of certain legal considerations relevant to potential purchasers as well as a brief outline of legal issues regarding the servicing of Irish residential mortgages.
Of particular concern to potential investors should be issues which impact on either the enforceability of the mortgages themselves or the timeline of enforcement.
ENFORCING RESIDENTIAL MORTGAGES
Issues which Impact on Enforceability
Start Mortgages -v- Gunn
The cases of Start Mortgages Ltd & Ors v. Gunn & Ors1 ("Start Mortgages") and the subsequent decision in Tom Kavanagh and Fergus Lowe v Jeremiah Lynch and Saint Angela's Student Residences Limited2 highlighted the effect of the Land and Conveyancing Law Reform Act 2009 (the "2009 Act") on enforcement procedures in respect of certain mortgages. Subsequent cases (EBS v Gillespie  IEHC 243, McEnery v Sheahan  IEHC 331 and William Moran & Ors v AIB Mortgage & Ors  IEHC 322]) have gone some way towards clarifying the position, as regards pre-1 December 2009 mortgages, where a Mortgagee is seeking to exercise its summary possession power, its power of sale, its power to appoint a receiver or its power to overreach (i.e. to sell clear of subsequent interests such as judgment mortgages). The Arthur Cox Finance Group has prepared a separate client briefing in relation to these matters, a copy of which can be obtained from your usual Arthur Cox contact or a member of the Finance Group. In summary, current caselaw makes it very difficult for a Mortgagee to benefit from the summary possession power in respect of a mortgage over registered land entered into prior to 1 December 2009 unless the secured monies became due prior to that date, any required demand was served prior to that date, and the mortgage was submitted for registration in the Land Registry before that date.
European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 and 2000 (the "Unfair Terms Regulations")
The Unfair Terms Regulations are particularly relevant in respect of the enforceability of residential mortgages and related loan documentation. An unfair term in a consumer contract is not binding on the consumer, however this should not affect core terms if they are drafted using plain intelligible language. In the case of a residential mortgage where the Mortgagor is a consumer, if the relevant loan or mortgage contract is capable of continuing in existence without the unfair term, that contract will continue to bind the parties. If any charges are found to be in violation of the Unfair Terms Regulations, the Mortgagee may be precluded from recovering those amounts, or they may be set-off against the total amount secured, which will damage the value of the Mortgagee's security.
Potential purchasers of Irish residential mortgage books should inspect carefully the terms of the mortgage and loan documentation to ensure that there is no violation of the Unfair Terms Regulations.
European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004 (as amended) (the "Distance Marketing Regulations")
Residential mortgage and lending contracts entered into without the Mortgagee and Mortgagor being simultaneously present may be regarded as distance contracts and come within the scope of the Distance Marketing Regulations where the Mortgagor is a consumer.
Under the Distance Marketing Regulations a distance contract may not be enforceable against a consumer if the supplier has failed to give certain information to a consumer before that consumer is bound by the contract. This information includes details of certain contractual terms and conditions and the total price to be paid by the consumer.
If the Mortgagee did not provide such information to the Mortgagor, the Courts may find the relevant mortgage or loan contract unenforceable. However, a Court may decide that the contract is enforceable if it is satisfied that the breach was not deliberate and did not prejudice the Mortgagor, and that it would be just and equitable to dispense with the Mortgagee's obligation to provide that information.
Potential purchasers should bear in mind that checking an Irish residential mortgage book for compliance with the Distance Marketing Regulations is essential.
Protection of the Family Home
A family home is defined in Irish law as a dwelling in which a married couple ordinarily resides. In Ireland, the family home is afforded special protection under both the Constitution and legislation, which renders enforcement of security over family homes more difficult for Mortgagees.
Under the Family Home Protection Act 1976 (as amended, the "1976 Act") a spouse who does not own the family home must give prior written consent to any disposal of an interest in the family home, including by way of mortgage. If this consent is ineffective or has not been given, any transaction disposing of the family home could potentially be set aside at the instance of the non-owning spouse within certain time limits. The 1976 Act also provides that a Court may restrict enforcement of a mortgage or sale in certain circumstances.
Pursuant to the Family Law (Divorce) Act 1996, if an individual is found by the Courts to have disposed of the family home with an intention to deny his/her spouse a right to that family home, the transaction disposing of the asset can be set aside. A Mortgagee will only be protected if it is shown to have acted without intentionally seeking to deny a spouse his/her rights.
Family home issues are normally dealt with by the Mortgagee obtaining a declaration that the relevant Irish property either is or is not a family home. Potential purchasers of Irish residential mortgage books should conduct their own diligence of the relevant loan files to confirm that these declarations have been provided, or obtain appropriate warranties from the seller that such declarations have been obtained and the relevant legislation has been complied with.