Yesterday's High Court ruling has implications for the banks' troubled balance sheets, writes CAROL COULTER, Legal Affairs Editor
THE POWER of banks to take possession of mortgaged properties has been severely hampered by yesterday’s High Court ruling.
The ruling could be appealed to the Supreme Court, but, even if it is processed urgently, that would take many months, during which lenders would be unable to possess land where the borrower had defaulted and the bank had not demanded full repayment before December 2009.
The other option is for the Government to amend the 2009 Act to restore the statutory power of banks to take possession of land mortgaged before 2009 and where a default arose later than December that year.
This 2009 Act, designed to reform land law, introduced a new and more straightforward regime for mortgages and came into force on December 1st, 2009. It simplified the arrangements for new mortgages, but it was not retrospective, and it repealed all the old statutory powers for existing mortgages.
A mortgage gives a bank certain rights, but only in the event of a default of payment by the borrower. Ms Justice Dunne ruled that if a lender had a pre-2009 mortgage and had not made a demand before the new Act came into force in December 2009, the lender had no right to apply to the court for possession.
This has implications for commercial as well as domestic mortgages, according to land law expert Marie Baker SC. She said that where there were multiple charges on land, which was often the case with commercial mortgages, most of the charges were under contract law. The old law allowed a bank to overreach all other creditors because it had rights under statute. However, with the loss of the statutory right to possess, the right to overreach other creditors has been lost, she said.
This means banks will not be able to take vacant possession of and sell land, or appoint receivers, where proceedings were initiated after December 2009.
It is likely that the banks’ stress tests took place on the assumption that the banks could, if necessary, take possession of and sell mortgaged land where the borrower defaulted. Yesterday’s ruling may give rise to further concern about the banks’ balance sheets.
However, amending legislation to restore the right to possess is now on the agenda.