Limits on the scope of the Code of Conduct on Mortgage ArrearsWednesday, 05 February 2020
Jimmy Murphy (Receiver) v Doran & Murphy, High Court interlocutory decision of J. Reynolds (unapproved) 17 January 2020 [2019/2885P] – helpful restatement of the law for secured creditors and receivers
This case deals with a borrower’s claim to invoke the Code of Conduct on Mortgage Arrears (“CCMA”) for a residential investment property where ByrneWallace acted for the successful plaintiff. Ms. Justice Reynolds found in favour of the receiver in an interlocutory application, restraining a Mortgagor and her husband from continuing to reside in a house, which had initially been funded as a residential investment property.
The Borrower entered into a loan agreement and a mortgage with First Active Plc in 2007. The purpose of the loan was to purchase the property as a residential investment property. The borrower moved into the property over four years later to use it as a family home, without the consent of the secured creditor. Allowing her husband to move into the property also breached the negative pledge provisions in the security. Ulster Bank, successor in title to First Active Plc, categorised the property as one which benefited from the protection of its MARP in 2014. A receiver was subsequently appointed in 2016.
The CCMA applies to the mortgage loan of a borrower which is secured by his or her primary residence. The Court found these terms must be read together and that the mortgage loan and the primary residence are the same time. It is not open to a mortgagor to change the character of the secured property by the unilateral act of moving into the property years after the date of the mortgage to take the protection of the CCMA.
Following the Tyrrell1 case, the Court held that even if the CCMA did apply, the borrower had been advised of the MARP process by Ulster Bank in 2014 and refused to engage with the process at that stage. In breaching the negative pledge, the Mortgagor had committed a breach of contract outside of the loan arrears and therefore MARP could not apply pursuant to Clause 57 of the CCMA.
Insofar as satisfying the criteria for an injunction were concerned, the Court was satisfied that the balance of convenience pending the full trial lay with the receiver. It was held that damages would not be an adequate remedy for the receiver where the Mortgagor is so heavily in arrears, that the Mortgagor would be unable to meet an award of damages in due course. The court was satisfied to rely on the undertaking as to damages provided by the receiver and held the balance of convenience favoured the granting of the injunction.
The Court accepted that the relief sought was mandatory and whilst noting the cautionary position adopted by the Supreme Court in Scriven2 so as to minimise the risk of injustice, was satisfied to make the Orders sought by the receiver, in light of the fact that the Mortgagor had made no effort to address her debt obligations and could not discharge the arrears which had accumulated.
Secured creditors often face inappropriate claims to take the benefit of the CCMA and this case presents a useful analysis by the Court to protect their position.