Should receivers handle home loan arrears?

25 September 2009

Larry Ryan talks to solicitor Grainne Dever, who acts for several Irish financial institutions in home loan arrears cases.

Mortgage lenders should consider appointing receivers to residential investment properties, Grainne Dever of Lavelle Coleman Solicitors believes. This would be an alternative to bringing court proceedings seeking an order for possession of the property.

She also feels the new Land and Conveyancing Law Reform Bill will not have the impact that has been anticipated.

Ms Dever handles many home loan mortgage arrears cases, coming before the courts in ever increasing numbers. She works on behalf of financial institutions to agree arrangements with borrowers and, if necessary, secure repossession orders.

With 207 repossession orders granted in the High Court in the first quarter of 2009, it’s a busy time. That figure is only 30 less than the final tally for 2008, and compares to 109 in 2007.

But the Dublin-based solicitor believes there is scope for lenders to protect their interests other than by the repossession route.

“In the case of residential investment properties, I think it’s time lenders looked at

appointing receivers,” she says. “There are so many residential investment properties out there and a number of them are defaulting. Under the standard mortgage deed and under the Conveyancing Act, lenders have the power to appoint a receiver over the income of the property. The duties of a receiver appointed under a mortgage deed are significantly less onerous than a receiver appointed over company assets under a debenture.”

“I think it’s something that lenders should be looking at when dealing with investment properties as an alternative to proceeding through the courts for a repossession order.”

The lender can appoint a receiver by way of a deed of appointment. Dever comments: “The receiver will take possession of the rent on the property. Any existing tenants are served notice that future rents will now go to the receiver appointed by the bank.”

The general principle is that the bank is bound by any leases already in place.

As well as generating income from properties that might prove difficult to sell,

receivership can prove a low-cost enforcement option for banks.

“The receiver is deemed to be an agent of the borrower,” explains Dever, “so the bank has no liability in respect of the management and the maintenance of the property. Costs really are limited to paying whoever your receiver is. Alternatively, if a bank simply takes possession, there are several obligations that can be both costly and onerous.”

Dever believes estate agents and property management companies would make ideal receivers for investment properties. However, while the practice has gained support in the UK, it’s still largely ignored here.

“It’s still very underused. But the power clearly exists under the mortgage deed.

And ultimately the bank can still sell the property provided the receiver has taken

possession of property or of the rents.”

Most of Dever’s work is done in the High Court, where financial institutions prefer to bring repossession cases because of greater efficiency.

“It’s a more efficient system,” says Dever, “the Circuit Court outside Dublin does not sit all year round whereas you have ongoing access to the High Court, apart from the long summer vacation.

“And because of the summary procedure available, you can proceed through the High Court fairly quickly and efficiently, so it shouldn’t increase the costs for the borrower.

“It’s one of the developed norms of mortgage litigation that judges are now awarding costs on a Circuit Court scale. So you have the efficiency of the High Court with no associated cost penalty.”

While some borrowers facing eviction might like to string out the process, Dever argues that everyone benefits from dealing with cases expeditiously.

“Repossession is always a last resort. No lender wants that and the institutions are constantly endeavouring to liaise with borrowers, not just pressing on with

applications for repossession orders.

“But if we’re going to delay and it’s going to take several years to recover properties and sell them, the arrears for borrowers are increasing all the time, as is the interest.”

The recent reform bill was passed by the Dail and just awaits final formalities. Dever feels it will be some time before it changes lenders’ ability to go to the High Court.

“The Bill does say that all home loan cases must be brought in the Circuit Court, going forward. However, it sets out that this only applies to mortgages that are created after the commencement of the Act,” she says.

“Therefore, lenders can still bring proceedings for possession orders in the High Court for all existing mortgages up to the date this law is enacted.

“So the Bill will really only effect mortgages and borrowers a couple of years down the line.”

Why not subscribe to our free weekly newsletter or RSS feed?

<< Back