New judgment on the application of the Code of Conduct on Mortgage Arrears

New judgment on the application of the Code of Conduct on Mortgage Arrears

ByrneWallace successfully acted for ACC Bank Plc in the above case where Mr. Justice White gave judgment on 25 March in ACC’s favour in relation to an application for possession of two residential investment properties. There is an important precedent point in the judgment in relation to the application of the Code of Conduct on Mortgage Arrears. 

The Code requires a secured lender to comply with a number of requirements before a formal application for possession of a ‘Primary Residence’ can be made. ‘Primary Residence’ is defined in the Code  (2013 edition) as meaning “a property which is: a) the residential property which the borrower occupies as his/her primary residence in this State, or  b) a residential property which is the only residential property in this State owned by the borrower”. Many borrowers with buy-to-let or residential investment property loans in recent times have been claiming that an erstwhile residential investment property now constitutes the ‘Primary Residence’ in circumstances where the borrower has taken active steps to move into the investment property even though arrears had arisen well before the move, with a view to bringing the loan the subject of the property within the ambit of the Code.  This has become a thorny issue for lenders, receivers and borrowers alike because the while the Code gives protection to loans secured by the primary residence, it is silent as to when a property must have become the ‘Primary Residence’ in order for the loan to fall under the Code.

Critically, the High Court has now ruled that for the Code of Conduct on Mortgage Arrears to apply to a loan in respect of a property which was originally mortgaged for commercial purposes and which was not originally intended to be the primary residence of the borrower, there would need to be cogent evidence put before the court that the lender had notice that the property was being used as the primary residence of the borrower and had acquiesced in the use of the property as a primary residence.  While clarity in the form of an amended Code or Central Bank guidance note on this point would remove all doubt, certainly this judgment is noteworthy and brings some much needed clarity to the area. 

If you would like more information concerning this judgment or the issues referred to in this article, please contact John Fitzgerald, or your usual contact in the firm.