Repossession procedures

29 May 2009

By Larry Ryan

In the first of a series on personal insolvency, Larry Ryan looks at the procedures a financial institution must follow to enforce a repossession order.

The level of repossessions in Ireland has traditionally been low compared to elsewhere in the world. Irish Banking Federation data released in March revealed that just 96 homes were repossessed in 2008. This is a repossession rate of 0.01 per cent compared to 0.35 per cent in the UK.

However, the flow of repossession orders through the courts has steadily increased in recent months. It’s not unusual to see up to 10 repossession orders being granted at the High Court’s weekly Chancery Summons sitting.

The Money Advice and Budgeting Service reported that approximately 27 per cent of its clients in Q1 2009 were having difficulty paying their mortgage compared to 22 per cent in the same period last year and 18 per cent in Q1 2006.

With growing numbers worried about the security of their homes, we look at the typical process from missed payment to repossession – a path that can take up to two years to complete.

1. First missed payment
The Code of Conduct for Mortgage Arrears, issued by the Financial Regulator in February, redefines the procedures that financial institutions must follow when a payment is missed. Firstly, the institution must contact the borrower to find out why the payment was missed and to see if a solution can be reached.

2. Arrears plan
After a second missed payment, the lender must engage the borrower and attempt to put together a plan for handling the arrears. This plan should take into account the borrower’s payment history and capacity, and the equity in the home.

3. Formal demand
When the borrower has missed three payments, more negotiation is usual but the lender can issue a formal demand for the amount due. It must outline the total arrears, any penalty interest or charges and advise the borrower that their home is at risk. It must also explain the likely legal costs involved if repossession is sought.

4. Legal proceedings
Irish institutions covered by the State’s bank guarantee must wait at least 12 months before initiating legal proceedings against a borrower. Other institutions must wait six months. The code of conduct insists that proceedings should not be initiated until every reasonable effort to reach a payment agreement has been exhausted. The lender can take an action in the High Court or Circuit Court, depending on the rateable value of the property. High Court actions are usually resolved more quickly.

5. Serving notice of proceedings
In a Circuit Court case, a civil bill is served on the borrower by registered post. In a High Court case, an equity summons is personally delivered to the borrower.

6. Entering an appearance
Having received a bill or summons, the borrower should indicate their intent to defend the case by submitting a form to the relevant court.

7. Defending the case
The borrower typically enlists a solicitor and files a defence with the relevant court. A date is then set for the repossession request to be heard.

8. Court hearing
At the court hearing, the judge can rule that the house be repossessed. However, many cases are being adjourned, with borrowers given more time to pay or present further information to the court. Instead of ordering repossession, the court can also confirm a repayment agreement between the lender and borrower. It will also adjudicate on the costs of the process.

9. The sheriff
If the court rules for repossession in favour of the lender, the borrower can apply for a stay of the order, which is often agreed. When a repossession date is finalised, the borrower can voluntarily surrender the home or a sheriff will take possession of the property.