Irish law and the mortgage crisis
The Irish mortgage crisis can be clearly traced to the financial crash, which revealed poor ECB banking regulation in the peripheral EU Member States. After that everything changed, as households became the “shock absorbers” of the crisis. The consequences for those who were unable to repay their mortgages are still being felt. The ensuing systemic mortgage arrears problem has presented challenges for the Irish legal system, and its Anglo-American ‘model’ of mortgage law.
A systemic issue
Today, with 28,000 mortgages in long term arrears, Central Bank of Ireland managers are predicting that at least 14,000 of home-owners will lose their homes, and suggest that sales of distressed mortgages are “legitimate and necessary”. Yet, a Central Bank report in 2015 showed that those owners in long term arrears most at risk of repossession are significantly more likely to have lower incomes, higher mortgage burdens relative to income, have suffered larger mortgage affordability shocks, and experienced unemployment shocks and divorce since origination. These borrowers face higher interest rates, and involve more vulnerable family types, such as single borrowers with multiple children.
Financial corporations seek to ‘externalise’ the costs of reckless lending, and through court ordered repossessions to displace the burden of rehousing their evicted customers onto the State or taxpayer. Mr Draghi, President of the ECB, who recently addressed the Oireachtas Finance Committee, is reported to have said that those in long term mortgage arrears should be supported by fiscal and social measures, rather than requiring the financial system to cover the losses. Significantly, the position of tenants in buy-to let properties are not fully considered in legal proceedings enforcing the security on a mortgage. But should the State and taxpayer take all responsibility for the homelessness resulting from lender actions in evicting tenants from buy-to-let repossessed properties?
Although Irish legislation had differentiated housing loan mortgages (as consumer loans) from other mortgages, the Irish legal system has strictly enforced the security of mortgages, even in cases of reckless lending and absence of borrower legal representation in courts. In Irish Life and Permanent v Dunne and Irish Life and Permanent v Dunphy [2015] IESC 64 the Supreme Court universally insulated the mortgage security rights of lending corporations from modern consumer codes, or any contemporary development of equitable remedies, instead urging the legislature to address any legal deficiencies through recalibration of the law. Indeed, there are many Bills on innovative ways to address unsustainable mortgage debts (including the transfer at a discount to a social purpose entity), to update insolvency laws and to regulate vulture funds.
European consumer protectioN
The CJEU requires courts in EU Member States to carry out own motion assessments for unfair terms and this process must also consider the impact of the EU Charter of Fundamental Rights – Article 7 of which states that “Everyone has the right to respect for his or her private and family life, home and communications.”
The Unfair Contract Terms Directive aims to assist individual consumers by ensuring that unfair terms are not enforceable against them, and there is also a dissuasive principle. Article 7(1) states:
Member States shall ensure that, in the interests of consumers and of competitors, adequate and effective means exist to prevent the continued use of unfair terms in contracts concluded with consumers by sellers or suppliers.
In the iconic Aziz case (Case C-415/11 Aziz v Caixa d’Estalvis de Catalunya), the CJEU held that the UCTD prohibited national legislation (such as that which applied in Spain) which limits the power of the court to stay mortgage enforcement proceedings, pending a decision on whether the mortgage contains unfair terms. The EU law principle of effectiveness requires that national laws or procedures must not make it impossible or excessively difficult to invoke the protection of the UCTD.
Bill on Proportionality
Draft legislation introduced by Kevin ‘Boxer’ Moran TD – now the Courts and Land and Conveyancing (Amendment) Bill 2018, seeks to empower courts to consider a wider range of issues in mortgage possession involving family homes as part of a statutory proportionality assessment. This will add to the suite of existing Government initiatives designed to assist people in mortgage distress – including the personal insolvency legislation and the Abhaile scheme, within a statutory framework which balances the rights of creditors and debtors. The Bill proposes the insertion of a new section in the Land and Conveyancing Law Reform Act 2013, with the purpose of addressing a situation arising where a borrower is unable to avail of an insolvency remedy. The existing regime does not protect certain households facing mortgage repossession, such as debtors with an income below that provided for in the Irish Insolvency Service reasonable living expenses guidelines, those with equity in their home although unable to pay their mortgage, or those who cannot service a mortgage on the current value of their home, since the insolvency legislation does not permit a mortgage write-down below certain levels. The position of children and other dependants of the debtor are not always properly considered.
Human Rights
Ireland has a world-wide reputation for the promotion of human rights, but remarkably these find little traction in mortgage eviction cases in Irish courts. Constitutional protection against the ‘violation of the dwelling,’ and Article 8 European Convention on Human Rights Act 2003 on the right to respect for home amount to minimum procedural safeguards, at best. Yet, European institutions (such as the ECB) are obliged to comply with the Charter of Fundamental Rights, which makes human rights part of binding EU law, and through which EU law must be interpreted in national courts. A study earlier this year of 100 court lists and 2,400 cases in mortgage eviction cases showed that two-thirds of distressed borrowers of ECB supervised lenders had no recorded legal representation – clearly breaching art 47 of the EU Charter on fair procedures. The Central Bank of Ireland seems oblivious to its public sector duty to respect human rights, as set out in Irish legislation of 2014.
Dr Padraic Kenna: Centre for Housing Law, Rights and Policy, School of Law, NUI Galway