In Stepstone Mortgage Funding Ltd -v- Clarke & anor [2015] IEHC 105, High Court, White Michael J, 15 January 2015 the High Court held, in an application for possession of a property, that while the Code of Conduct on Mortgage Arrears (the Code) required a lender to explore all options for alternative repayment, the lender is not obliged to explore the option of a voluntary scheme of which it is not a participant.

Facts

The Defendants (who had a number of dependent children) were joint owners of the property on which there were substantial arrears due to changes in their economic circumstances. 

The Plaintiff (Stepstone) offered the Defendants a number of options of dealing with the arrears including selling the property and writing off any remaining balance due on the mortgage. The Defendants declined this offer, as they were concerned they would be rendered homeless. 

The Defendants enquired about a government initiative known as the Mortgage to Rent Scheme (the Scheme), whereby a private housing agency would purchase a home at market value and the borrower would become the tenant of the housing agency. 

Stepstone refused this option on the basis that it did not participate in the scheme. The Defendants filed an affidavit sworn by Mr David Hall of the Irish Mortgage Holders Association asserting that the Plaintiff did participate in the Scheme. 

Stepstone told the court that it had never offered the Scheme to its borrowers but that it had in place a pilot scheme under which it had identified ten borrowers with whom it had taken steps to enter into the Scheme to assess whether or not it would reconsider its policy. 

The IMHO stated that the idea of a pilot offer was not envisaged by the Code as this would open the possibility of financial institutions being able to cherry pick between equally eligible borrowers. 

The Defendants argued that as a matter of law, Stepstone had a duty pursuant to the Code to explore the Mortgage to Rent Scheme with the Defendants. 

Decision

The Court noted that the issue in the present case was the right of Stepstone to recover possession of the property in the absence of any offer by it to explore the Scheme with the Defendants. 

On a preliminary point, the Court held that even though the present proceedings were issued in March 2010, the most recent version of the Code (effective from 1 July 2013) applied, as the proceedings were still current when the revised Code issued and an order for possession had not been granted, nor had the issues in dispute been heard by the Court. 

The Court held that the Mortgage to Rent Scheme clearly came within the ambit of a voluntary scheme set out in the Code but noted that there was no obligation on a lender to sign up to the Scheme. 

The Court found that if Stepstone had signed up to the Scheme there was an obligation to explore all options for alternative repayment arrangements with the Defendants including the Scheme. However, if Stepstone had not signed up for the Scheme, there was no obligation on it to explore this option with the Defendants. In such circumstances Stepstone would not be in breach of the Code and the Defendants could not resist an order for possession. 

Accordingly, the Court held that it was essential that Stepstone demonstrate to the Court’s satisfaction that it had not signed up to the Scheme and that any consideration of the Scheme was on a pilot basis only.