Where a financial institution provides a loan to a person, either secured by a mortgage over property or unsecured, and the borrower subsequently dies, the limitation period set out in Section 9(2) of the Civil Liability Act 1961 may be relevant and should be noted.
Pursuant to Section 9 (2) of the Civil Liability Act 1961, no proceedings are maintainable in respect of any cause of action whatsoever which has survived against the estate of a deceased person unless either:
- Proceedings against the deceased in respect of that cause of action were commenced within the relevant period, and were pending at the date of his death, or
- Proceedings are commenced in respect of that cause of action within the relevant period or within the period of two years after his death, whichever period first expires.
Accordingly, claims surviving against the estate of a deceased person must be brought within two years of the death of the deceased.
These issues are particularly important where the deceased received a loan either without having obtained a life assurance policy or where the insurance company have grounds to refuse to pay the proceeds of the policy.
The death of a borrower is sometimes stated in the general loan terms and conditions to be an event of default. Alternatively, an event of default occurs where repayments cease to be made following the death of a borrower. In such circumstances, the financial institution may wish to call in its security or seek repayment of the loan.
It is arguable that, where the event of default does not arise until the date of death of the borrower or when a default in the loan repayments occurs subsequent to that date, the two year limitation period set out in the Civil Liability Act 1961 is not applicable. Indeed, as the cause of action has not in fact survived against the estate of the deceased borrower since it did not exist prior to the death, the two year limitation period may not be relevant in commencing court proceedings on foot of the loan.
However, no definitive judgment has been given by the Irish Courts as to whether the limitation period set out in Section 9(2) of the Civil Liability Act 1961 is applicable in such circumstances. Until an authoritative ruling has been handed down by the Courts, the current view is that, where a financial institution wishes to enforce its security against, or seek repayment of a loan from, the estate of a deceased borrower, it should commence court proceedings against the estate within two years of the date of death.
The financial institution may wish to institute court proceedings against the personal representative(s) of the estate for the repayment of the loan from the estate of the deceased borrower. In the case of a loan secured by a mortgage over a property, in order for the financial institution to exercise its power of sale, it may require a surrender of the property from the personal representative(s) of the estate of the deceased borrower. Alternatively, it may be required to issue court proceedings for possession of the property against the personal representative(s) of the estate. In all of these cases, prudent practice dictates that court proceedings should be issued against, or the surrender obtained from, the executor or administrator of the estate, duly appointed by the High Court pursuant to a Grant of Representation.
In the event that a Grant of Probate, where the deceased borrower died having made a Will, or Letters of Administration, where the deceased borrower died without having made a Will, have not been extracted by the persons entitled to do so and the two year limitation period is approaching, it may be necessary for the financial institution to make an application to the Courts pursuant to Section 27 (4) of the Succession Act 1965 seeking an order appointing a person to take out a Grant of Representation in relation to the estate of the Deceased. Such an appointment is generally limited for the purpose of either defending court proceedings brought by the financial institution against the estate or effecting a surrender of the property to the financial institution.
After such an order is obtained, the person appointed may apply to the Probate Office of the High Court to extract a limited Grant of Representation in the estate of the deceased borrower. It is important to ensure that the limited Grant of Representation is obtained and either the court proceedings issued or surrender effected within two years from the date of death of the deceased borrower.