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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Stepstone Mortgage Funding Ltd -v- Hughes & anor [2015] IEHC 487 (21 July 2015) URL: http://www.bailii.org/ie/cases/IEHC/2015/H487.html Cite as: [2015] IEHC 487 |
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Neutral Citation [2015] IEHC 487 THE HIGH COURT [2013 No. 451 SP] BETWEEN STEPSTONE MORTGAGE FUNDING LIMITED PLAINTIFF AND
JOHN HUGHES AND TERESA HUGHES DEFENDANTS JUDGMENT of Ms. Justice Murphy delivered on the 21st day of July, 2015 1. The plaintiff’s claim is for possession of the defendants’ dwelling situated at Corbeagh, Cootehill in Co. Cavan. By letter of offer dated the 13th March, 2008 the plaintiff agreed to advance to the defendants, who were then in their early sixties, a sum of €185,000 by way of loan secured on a mortgage. The stated purpose of the loan was to discharge a prior mortgage to Start Mortgages of €100,000 and the balance of €85,000 was expressed to be in respect of home improvements. The mortgage was to be secured on lands at Corbeagh, Cootehill, Co. Cavan which comprised the defendants’ family home. An indenture of mortgage was completed on the 24th April, 2008 and the plaintiff advanced to the defendants the sum of €185,000 on or about the 28th April, 2008. For some reason, the charge was not registered in the Land Registry against the defendant’s folio until the 4th January, 2010 by which time the defendants were already in default. 2. The defendants contend that the Court should not grant the plaintiff an order for possession on three grounds. Firstly, they contend that a letter of demand sent on behalf of the plaintiffs on the 10th June, 2010 is defective both because the sum claimed to be due is inaccurate and because no clause of the mortgage was specified in the letter. Secondly, the defendants contend that the plaintiff is not entitled to possession by reason of its failure to comply with the Code of Conduct on Mortgage Arrears, the relevant code being the 2010 code which was effective from 1st January, 2011. Thirdly, the defendants resist the plaintiff’s application on the grounds that what is contained in the charge exceeds that which was intended to be mortgaged and includes a portion of an adjacent commercial property which is also the property of the defendants. 3. Following the hearing of the case but before judgment, the Supreme Court delivered its decision in the linked cases of Irish Life & Permanent PLC v. Dunne and Irish Life & Permanent PLC v. Dunphy [2015] IESC 46 which clarified the court’s role in assessing compliance with the Code of Conduct on Mortgage Arrears. The Court reconvened and gave the parties the opportunity to address it on the newly clarified legal landscape in relation to the code on mortgage arrears. History of the mortgage 5. Within months of the drawdown of the loan, the mortgage was in difficulty. The direct debit of December 2008 was unpaid as was the direct debit for January 2009 and February 2009. Thereafter such payments as were made to the account were made by way of credit transfer or bank giro. At the time of the execution of the mortgage the second named defendant had taken out life cover with Irish Life, the benefit of which was assigned to the plaintiff. In February 2009 Stepstone were notified by Irish Life that the second named defendant’s life cash cover plan, had lapsed due to non payment for the period since 24th December, 2008. The Court has no evidence that any steps were taken by the plaintiff arising from the default which was evident from December 2008. It appears to the Court, that the averment in the affidavit of compliance filed on behalf of the plaintiff on the 5th October, 2013, which states that the mortgage account has been in arrears since September 2009, is inaccurate in that the arrears appear to have commenced nine months earlier. In any event, a meeting was held by the plaintiff with the defendants on 2nd November, 2009 to discuss their circumstances. Their circumstances were poor, the recession having caused a virtually fatal downturn in the business of school uniforms and bridal wear as averred to in the affidavit of first named defendant sworn 8th July, 2014. In November, 2009, a temporary arrangement was entered into between the parties for a weekly payment of €200. The idea was that the arrangement would remain in place until the defendants’ financial situation was reviewed by the plaintiff. The first of the agreed weekly payments of €200 was paid on 6th November by means of a giro payment. No other payment was made in November but on 1st December a credit transfer in the sum of €166.93 was paid. Because of the defendants’ failure to pay the weekly sum of €200 as agreed, attempts were made by representatives of the plaintiff to contact them. The evidence is that five such attempts were made between 12th November, 2009 and 23rd November, 2009. A further meeting between the parties was held on 14th December, 2009 during which the defendants told the plaintiff that they were unable to afford €200 a week. According to the plaintiff an arrangement was put in place whereby the defendants would make a lump sum payment of €500 and payment thereafter of €150 per week. That arrangement was to remain in place until the end of January 2010. The Court notes that the latter arrangement actually increased the burden on the defendants in that under that arrangement they were to pay €1,400 in the six week period whereas under the previous arrangement the sum would have been €1,200. 6. On 22nd December, 2009, the second named defendant contacted the plaintiff to let them know that she was unable to pay the €500 lump sum and would only be in a position to pay €200. A giro payment of €200 was paid by the defendants on 31st December, 2009. 2010 8. On 10th June, 2010, AC Forde & Company Solicitors for the plaintiff wrote to the defendants to inform them of their default in the payments due to the plaintiff and to formally demand repayment of the amount outstanding. The letter further informed the defendants of the plaintiff’s intention to commence proceedings. It is not contested that the stated sum due on the letter of demand is incorrect. The amount demanded is €182,645.73 when at that point the sum in fact due was in excess of €193,000. Two weeks later on the 23rd June, 2010 a further letter was sent to the defendants by the plaintiff’s solicitors informing the defendants that the solicitors had instructions to proceed for an order for possession and sale on foot of the legal mortgage held by the plaintiff over the named premises and inviting the defendants to deliver up vacant possession of the premises within fourteen days from the date of the letter. Neither letter made reference to the Code of Conduct on Mortgage Arrears. Following receipt of those letters the defendants made considerable payments to their mortgage account having regard to their very limited income. Between June and December, 2010 they paid €5,906.80 to the credit of their account. During this period no further letter issued from the plaintiff’s solicitors. 2011 10. On the 1st July, 2011 the plaintiff sent a form letter signed Collections Department to the defendants. The Court notes that the pro forma letter and the booklet attached were sent out more than a year and a half after the defendants had first told the plaintiff, on 2nd November, 2009, of the financial difficulties that they were experiencing and more than two and a half years from the first indications in December 2008, that the defendants were experiencing difficulties in discharging their mortgage. Similarly, it should be noted that this pro forma letter followed a week after the solicitor’s letter to their broker in which the only proposal put to the defendants was the sale of the property, in the event of which the plaintiff might be willing to accept a sum less than the amount due. 11. In its affidavit of compliance with the code of conduct the plaintiff sets out numerous unsuccessful attempts made by it to contact the defendants. Attempts were made apparently, up to five times a month. The Court has not been told as to the manner of attempted contact. No correspondence has been exhibited and the Court deduces there from that the attempted contacts were telephone contacts. The Court observes that it might have been more productive for the plaintiff to have contacted the mortgage broker whose assistance the defendants had already sought in dealing with their difficulties. Contact with such an intermediary to discuss possible solutions to the problem which presented itself might have lead to real discussion as to possible resolution, particularly bearing in mind that the defendants owned other property which is in the balance of the folio against which the charge is registered. 12. During this period, while they may not have been answering the phone, the defendants made significant payments to their mortgage account. Between August 2011 and December 2011 they paid almost €4,500 to the credit of their account. 2012 14. On 20th July, 2012, having conducted an assessment of the financial information received from the defendants, the plaintiff apparently elected not to offer them an arrangement in respect of their account and forwarded a decline letter to them. The letter outlined that the plaintiff was not prepared to offer an alternative repayment arrangement on the grounds that it appeared from the SFS that the defendants did not have sufficient disposable income to enable them to maintain an appropriate level of payment and that there was no evidence that there would be any material change in their circumstances. The plaintiff informed the defendant that they intended to continue with proceedings for the possession of the mortgage property but informed them that there were other options that they could consider to avoid repossession through litigation. The options set out were:
(2) Voluntary sale: Subject to there being equity in your property (in other words the value of your property is greater than the amount owing on your mortgage); you could sell your property and repay your mortgage in full. (3) Voluntary surrender: This would involve you signing a legal agreement whereby you would give up possession of your property to Stepstone, Stepstone would then take steps to market and dispose of your property with vacant possession being given to the purchaser.” 15. No consideration appears to have been given to a possible sale of the balance of the defendants’ folio on which stands their commercial premises as an alternative to the sale of their family home. The letter also referred to a right of appeal in respect of the plaintiff’s decision to offer the proposal in question and notified the defendants that the appeal must be in writing and submitted within twenty five business days of the receipt of the letter. The signature on the letter is illegible and the letter is sent by the collections department. 16. The defendants did not file an appeal but continued to make payments to their mortgage account. Between August 2012 and the issuing of proceedings in July 2013 they paid a total of €6,600 towards their mortgage account. The proceedings 18. Following the service of proceedings, from September 2013 to January 2014, the defendants stopped making mortgage payments as, according to the replying affidavit of Mr Hughes, the first named defendant, having received proceedings they did not know what to do. However, they recommenced payments in January 2014 and paid a total of €4900 between then and January 2015 which is the most recent date for which an account has been furnished to the Court. 19. In the meantime the plaintiff lodged its proceedings and the matter came on before the Master of the High Court on the 31st October, 2013. The defendants did not appear. The proceedings were adjourned to the 16th January, 2014. On the 21st January, 2014 the plaintiffs applied to the Master for, and were granted, liberty to amend the schedule of lands in the special summons to specify reference to plan C1Y7Q as being the lands subject to charge. The matter was again adjourned to the 13th February, 2014. On that date the defendants again did not appear. Upon the hearing before the Master, the Master was not satisfied with the wording of the demand letters issued to the defendants on the 10th June, 2010 contained in exhibit E of the plaintiff’s grounding affidavit. Following legal argument the Master of the High Court ordered that the special summons be struck out for want of a valid demand and ordered that the plaintiff pay the defendants’ costs of the summons and order when taxed. On 17th February, 2014 the plaintiff’s solicitors issued a notice of motion seeking an order vacating the order of the Master of the High Court made on 13th February, 2014, and substituting therefore an order transferring the proceedings to the Chancery Special Summons list of the High Court. These proceedings were served on the defendants by pre-paid registered post. On the 10th March, 2014 the order of the Master was vacated by Gilligan J. and the special summons was reinstated and adjourned to the 23rd June, 2014. On 19th March, 2014 the solicitors for the plaintiff wrote to the defendants and informed them that the order of the Master had been vacated and that the matter had been adjourned to 23rd June, 2014 before the Chancery Summons list, in order to allow them to obtain legal advice and submit any proposal that they may have to the plaintiffs. The letter requested that the defendants forward any proposal they may have to the plaintiff at the earliest opportunity. 20. On 27th May, 2013 the Law Centre in Cavan entered an appearance for the defendants. On 9th June, 2014 a building surveyor engaged by Cavan Law Centre, Mr. Jarlath Johnson, visited the site of the mortgaged property to carry out an inspection of the site boundaries and to compare them to that outlined on the folio map attached to Folio CN29207F. His inspection discloses, and it is not in essence disputed by the plaintiff, that plot C1Y7Q of which the plaintiff seeks possession, does measure 0.0912 hectares as set out in the schedule of lands in the special summons, but it includes part of a commercial light industry building which is not and was never intended to form part of the mortgaged property. An order for possession would therefore, both in terms of the area claimed and the map relating to that area, give the plaintiff possession of property to which they are not entitled. 21. The special summons was listed for hearing on 23rd June, 2014 and the matter was adjourned to allow Cavan Law Centre file replying affidavits on behalf of the defendants. On 10th July, 2014 Cavan Law Centre on behalf of the defendants wrote to the plaintiff’s solicitors suggesting that issues arose on the sufficiency of the demand letter issued; compliance with the MARP process and identification of the land and premises covered by the mortgage. Reference was also made to the serious health issues suffered by the second defendant which they stated were linked to the stress arising from the debt and the possession proceedings. In this context they offered a payment of €645 per month out of a joint monthly income of €1,766.50 and asked the plaintiffs not to seek possession of the property. This offer was rejected on 15th July, 2014. 22. A replying affidavit was filed by the first named defendant on behalf of both defendants on 18th July, 2014, in which he deposed to his own poor state of health and exhibited a medical report in respect of the second named defendant which indicated that she suffers from severe anxiety, panic attacks, low mood and ischemic heart disease. The medical report also indicated that the second named defendant has NSTEMI with diffuse multi vessel disease and that she has attended mental health services and completed a course in cognitive behaviour therapy. The report finally indicated that the second named defendant has a number of additional stressors in her life separate from the stress associated with these proceedings. The first named defendant requested that the Court refuse to grant an order for possession to allow him and the second defendant more time to negotiate with the plaintiff and to allow them an opportunity to get the family business back on the road. 23. On 30th October, 2014 a supplemental affidavit was sworn on behalf of the plaintiff dealing with the issues raised in the defendants’ affidavit of 18th July, 2014. The deponent points out that the issue of the age of the defendants when taking out the mortgage was fully addressed at the time of the creation of the mortgage and that the defendants had indicated that they proposed to maintain mortgage payments in retirement by “trading down”. He also points out that while a medical report has been furnished in respect of the second named defendant none was furnished in relation to the first named defendant who was the deponent. He denies that any agreement was made with any mortgage broker on behalf of the plaintiff. He accepts that the demand letter contained an error but states that it is irrelevant in the context of clause 12 of the mortgage which provides for immediate payment in the event of default. 24. In so far as there may be issues with the boundaries of the charged property he contends that those are exclusively a matter for the plaintiff and do not have an impact on the possession proceedings. In response to the suggestion by the first named defendant that MARP procedures were not followed by the plaintiff its deponent points out that the first named defendant failed to identify precisely how the said procedures were not complied with. The deponent goes further and deposes to his belief that the process had been duly complied with by the plaintiff. 25. On 8th December, 2014 Grier and Associates financial consultants wrote to the plaintiff on behalf of the defendants to submit a further proposal to them. On 20th January, 2015 the plaintiff wrote to Grier and Associates and to the defendants to inform them that following an assessment of their personal and financial circumstances and after careful consideration of the proposal submitted, they believed that the arrangement proposed was not appropriate given the defendants particular circumstances. The plaintiff stated that they had concluded that the mortgage was unsustainable and that proceedings would continue for possession of the property. The matter came before this Court for hearing on 3rd February, 2015. 26. The foregoing is the background against which the Court must consider the plaintiff’s application for possession of the secured property. It is not in dispute that the defendants borrowed €185,000 from the plaintiff nor that at the date of hearing being 3rd February, 2015 a balance of €215,041.02 was owing in respect of principal and arrears, nor that the defendants family home at Corbeagh, Cootehill, Co. Cavan was charged as security for the said loan. 27. As already noted, the defendants resist the plaintiff’s application for possession on three grounds. Firstly, the defendants maintain that the letter of demand was ineffective and invalid. Secondly, the defendants contend that the plaintiffs have not complied with the MARP procedures promulgated by the Central Bank. Thirdly, they maintain the granting of an order of possession would constitute an unjust enrichment of the plaintiff in that both in terms of the area of land and the accompanying map the plaintiff would be entitled to possession of land which neither party intended should be charged as security for the loan. Letter of Demand
(i) if the borrower should default in the performance of any of the covenants, terms or conditions contained in this mortgage or in the letter of offer or in any loan or other agreement and if such default continues unremedied for the period of seven days.”
Compliance with the Code of Conduct on Mortgage Arrears 32. That said, the Court welcomes the recent clarification by the Supreme Court of the Court’s role in assessing compliance with the code in the linked decisions of Irish Life and Permanent v Dunne and Irish Life and Permanent v Dunphy. Having analysed the evolution of the jurisprudence in this area from Zurich Bank v. McConnan [2011] IECH 75 through Stepstone Mortgage Funding Limited v. Fitzell [2012] IEHC and Irish Life & Permanent plc v. Duff [2013] IEHC, the Court set out the test which it had recently formulated in Quinn & Ors v. Irish Bank Resolution Corporation Limited (in special liquidation) & Ors [2015] IESC 29 and adapted it for the purpose of considering whether a financial institution must be regarded as being legally debarred from seeking to exercise a right to possession, which it would otherwise enjoy, by reason of a breach of the code. The question which the Supreme Court most helpfully addressed was whether a dispute concerning a financial institution’s compliance with the code is a matter which the court must resolve in the context of possession proceedings. Having considered the various provisions of the code the court, Clarke J. concluded at paragraph 5.24:-
36. On the facts of this case it is clear that the defendants had well in excess of the twelve month moratorium stipulated by article 47 of the code. The defendants’ mortgage was in trouble within months of its creation. Direct debits went unpaid in December 2008 and in January 2009; thereafter such payments as were made to the account were made by way of credit transfer or bank giro. In February 2009 Stepstone were notified by Irish Life that the second defendant’s life cash cover plan had lapsed due to non payment for the periods since 24th December, 2008. In November 2009 a meeting was held with the defendants. Their circumstances were poor, the recession having caused a virtually fatal downturn in their business of manufacturing school uniforms and bridal wear. In the intervening years the defendants have struggled and strained to make significant payments toward their mortgage. The level of payments made by them, despite being on a limited income of slightly in excess of €1,700 per month, has been at a level which approximates to the interest on their loan but it is now almost five years since they were notified formally that they were in default of their payments in a letter dated 10th June, 2010. It is almost four years since they were furnished with a MARP booklet on 1st July, 2011. Between the issuing of the MARP booklet and the issuing of proceedings seeking possession two years elapsed during which unfortunately no solution was arrived at. Given the two year lapse of time between the issuing of the MARP booklet and the issuing of proceedings, it cannot be said that the plaintiff issued the proceedings within the period of the moratorium. That provision of the code having been complied with, the Court has no discretion or power to consider or act upon any other provisions of the code. In these circumstances the plaintiff is entitled to an order for possession of the charged property. Possession |