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Irish Law Reform Commission Papers and Reports
You are here: BAILII >> Databases >> Irish Law Reform Commission Papers and Reports >> Judgment Mortgages, Consultation Paper on (LRC CP 30-2004) [2004] IELRC CP30(5) (March 2004)
URL: http://www.bailii.org/ie/other/IELRC/2004/CP30(5).html
Cite as: [2004] IELRC CP30(5)

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    CHAPTER 5 JUDGMENT MORTGAGES OVER THE
    FAMILY HOME
    A Current Law
  1. 01 Although there is no specific statistical data which indicates

    the number of judgment mortgages registered against properties

    which constitute the family home of the judgment debtor, it seems

    reasonable to assume that a significant proportion of judgment

    mortgages are registered against such properties.

    (1) Judgment Mortgages and the Family Home Protection Act
    1976
  2. 02 It was held by Carroll J in Containercare (Ireland) Ltd v
    Wycherly[1] that the consent of a non-owning spouse to a judgment

    mortgage registered against the interest of the judgment debtor is not

    required under the Family Home Protection Act 1976 (FHPA). The

    reason for this decision is, by way of summary, because a judgment

    mortgage is not a voluntary act on the part of the judgment debtor –

    rather it comes into being by operation of law.[2] So where X, being

    the owner of the family home, incurs debts which he or she fails to

    pay, and has judgment entered against him or her, Y, the spouse,

    would not benefit from the protection normally afforded by the FHPA

    were X voluntarily to mortgage his or her interest in the family home

    to a creditor. If the transaction were a voluntary mortgage by X, Y

    could prevent its completion by withholding consent under the FHPA.

    This protection is not available to Y under the law as it currently

    stands in respect of a judgment mortgage.

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  3. 03 There is a great deal of merit in the view that this rule could

    operate unfairly against the non-owning spouse. A non-owning

    spouse could find, as a result of the owning spouse's financial

    irresponsibility, that a judgment mortgage is registered against the

    family home – thereby putting the non-owning spouse and family at

    risk. The logical extension of this would be to provide that the

    registration of a judgment mortgage should be a transaction which

    requires the consent of the non-owning spouse for the purposes of the

    FHPA.

  4. 04 On balance, however, it is not recommended that the law be

    amended to provide that the consent of a non-owning spouse be

    required for the purposes of registration of a judgment mortgage. The

    reason for this is explained in some more detail in Part B of this

    Chapter. However, in summary, it is submitted that placing such a

    bar on the effectiveness of a judgment mortgage would, in practical

    terms, virtually rule out the possibility of any judgment mortgage

    being registered over a property that was a family home for the

    purposes of the FHPA. It is reasonable to assume that few – if any –

    spouses would grant their consent to registration of a judgment

    mortgage against the family home.

  5. 05 Instead, in order to protect the interests of the non-owning

    spouse and the family, it is proposed that no order for sale of a family

    home pursuant to a judgment mortgage should be possible unless the

    court so orders, having heard all interested parties. Again, the manner

    in which this should proceed is set out in more detail below.

  6. 06 The Commission does not recommend that the law be
    amended to provide that the consent of a non-owning spouse be
    required for the purposes of registration of a judgment mortgage but
    rather proposes that no order for sale of a family home pursuant to a
    judgment mortgage should be possible unless the court so orders.
    (2) Judgment Mortgages and Prior Equities in the Family
    Home
  7. 07 A related issue is whether a judgment mortgage should

    override the equitable interest of the non-debtor spouse, partner or

    other person in the property. In this regard we conclude that the

    existing law protects the interests of those with a prior equity. We

    consider that Lyall is correct[3] in stating that it does not necessarily

    START OF PAGE 51

    flow from Carroll J's decision in Containercare (Ireland) Ltd v

    Wycherly[4] that a judgment mortgagee can obtain an order for sale

    against the judgment debtor's spouse whose interest appears on the

    title, or against a spouse with an equity in the family home:

    "That would be contrary to the decision in Tempany v
    Hynes in which the Supreme Court held that a judgment

    mortgage is a transaction without valuable consideration

    and, as such, is subject to all the equities which bound the

    judgment mortgagor. Where the non-debtor spouse has an

    equity it therefore takes priority over the judgment

    mortgage. It is submitted that it is then for the court to

    decide how that equity is to be satisfied. It may be that in

    some cases the just result would be to order sale. In other

    cases the circumstances may require that the non-debtor

    spouse should remain in possession. The court has a

    discretion."

  8. 08 As noted above, the Commission does not recommend any

    change to the law so as to improve the priority status of a judgment

    mortgagee. A judgment mortgage is not a charge on land created for

    valuable consideration within the meaning of section 68(3) of the

    Registration of Title Act 1964. Accordingly, under section 74(4)(c) of

    the 1964 Act the judgment mortgage is subject to all unregistered

    rights subject to which the judgment debtor held the land at the time

    of registration of the judgment mortgage. It would appear, therefore,

    that where a spouse has an equitable interest in the family home (eg

    by reason of payments attributable to the purchase price or discharge

    of any mortgage over the home) this will prevail over the interests of

    the judgment mortgagee.

  9. 09 The position is less clear with regard to unregistered land.

    It may very well currently be the same because the judgment

    mortgagee is a mere volunteer, whose interest must perforce yield to

    those of the spouse whose equity has been obtained by valuable

    consideration. The contest with regard to priority is won by the

    spouse by reason of his or her interest having been obtained (a) first

    in time and (b) for valuable consideration. As already noted, the

    Commission recommends that the position should be the same

    whether title to land is registered or unregistered. The Commission

    START OF PAGE 52

    also recommends that a judgment mortgage should be subject to any

    prior legal or equitable rights.

  10. 10 As regards judgment mortgages and prior equities in the
    family home, the Commission provisionally recommends that a
    judgment mortgage should be subject to any prior legal or equitable
    rights. The Commission also provisionally recommends that the
    position should be the same whether title to the land is registered or
    unregistered.
    B Proposals for Reform
    (1) General
  11. 11 The potential effects of a judgment mortgage over a family

    home (within the broad, non-technical, meaning of that phrase) raise a

    number of policy issues which would have to be addressed by the

    Oireachtas were it to enact legislation updating the law and procedure

    with regard to judgment mortgages.

  12. 12 An obvious issue is whether, for the purposes of new

    legislation on judgment mortgages, a family home should have the

    same relatively narrow meaning as under the Family Home Protection

    Act 1976 (ie a home in which the owner and his or her spouse reside),

    or whether it should have a broader meaning. For example, the

    Oireachtas may seek to cast the net more broadly so that a broader

    range of households is caught by the definition.

  13. 13 It is not the purpose of this Paper to prejudge these issues,

    still less to express a preference one way or the other as to which (if

    any) policy objectives should be pursued. Instead, this Paper will

    proceed on the basis that special considerations will apply where a

    judgment mortgage is registered with regard to the family home –

    whilst leaving aside the issue as to how the legislature intends to

    define the family home for these purposes.

    (a) Availability of Remedies in Respect of Family Home
  14. 14 One policy issue is whether the remedy of the judgment

    mortgage should be available against a family home at all; another is

    whether or not the further remedy of sale of the premises should be

    available in respect of the family home if a judgment mortgage is

    obtained in respect of it. Once again, this is straying into the area of

    legislative policy to an extent – albeit to a lesser extent than with

    START OF PAGE 53

    regard to the process of defining the family home. In this regard the

    Commission would suggest that it would appear sensible that there

    should be no bar to registering a judgment mortgage over property

    which is the family home. However, we consider that there should be

    control, in the form of court approval, for any order for sale of a

    family home pursuant to a judgment mortgage (see paragraphs 5.17 –

  15. 19 below).
    (b) Family Home Protection Act 1976
  16. 15 As noted above, it was held by the High Court in
    Containercare (Ireland) Ltd v Wycherly[5] that registration of a

    judgment mortgage was not a transaction to which the non-owning

    spouse was required to consent pursuant to the Family Home

    Protection Act 1976. Although the Commission recommends that

    generally a judgment mortgage should be treated as if it were a

    consensual transaction, the Commission does not consider that there

    is any reason to require the consent of the judgment debtor's spouse

    before the judgment creditor may register a judgment mortgage

    against the family home. In practical terms, it is reasonable to assume

    that most spouses would refuse to give their consent. Few spouses

    would consent to putting in train a process which could eventually

    entail the family being put out on the street. Accordingly, it appears

    to us that imposing such a requirement would render the judgment

    mortgage procedure unworkable.

    (2) Order for Sale Pursuant to a Judgment Mortgage
  17. 16 In the Commission's view whilst the family home should

    not be made automatically immune from the judgment mortgage

    procedure, there should be no order for sale of the family home save

    by order of the court. In this regard an analogy should be drawn

    between the judgment mortgage situation and the procedure under

    section 61(4) of the Bankruptcy Act 1988 whereby the Official

    Assignee should not be permitted to dispose of the bankrupt's family

    home without the sanction of the court. This aim can be achieved, in

    our view, by providing that a judgment creditor before seeking an

    order for sale should serve on all interested parties an application to

    sell so that if those parties wish to be represented at the hearing and

    have their views heard they are given the opportunity to do so.

    Further, there should be a provision that no disposition of a family

    START OF PAGE 54

    home shall be permitted unless the spouse[6] and minor children of the

    judgment debtor resident in the premises have been afforded the

    opportunity of being heard at the hearing to sanction disposal.[7]

  18. 17 The Commission recommends that no order should be made

    that a family home be sold without the approval of the court.

    Furthermore, a judgment creditor having registered a judgment

    mortgage over any other type of property would have to apply to

    court for an order for sale of the property.

  19. 18 A further issue which must be considered are the principles

    which should apply when the court is dealing with a judgment

    creditor's application to sell a property which is the family home of

    the judgment debtor.[8]

  20. 19 It is suggested that the following principles be applied. In

    exercising its discretion legislation should provide that the court take

    into account the following:

    (i) the financial means of the judgment creditor;
    (ii) the financial means of the non-debtor owner;
    (iii) the financial means of the family of the non-debtor owner

    residing in the property;

    (iv) whether, upon a sale of the property, sufficient proceeds

    would be available to the non-debtor owner to purchase

    reasonably similar accommodation in the same locality;

    (v) the amount of the judgment mortgage as a proportion of the

    value of the property;[9]

    START OF PAGE 55

    (vi) the ability of the judgment debtor to provide[10] reasonable

    alternative accommodation from the proceeds of sale of the

    property;

    (vii) any other matters which seem relevant to the court.
  21. 20 Clearly, as a basic matter, it is vital that the court have

    available to it evidence as to the value of the property. Otherwise it

    will not have all the material necessary to enable the court to do

    justice between the parties. The matter will have to be adjourned so

    that inquiries and an account can be taken, as occurred in First

    National Building Society v Ring.[11] This is clearly undesirable and

    unfair to the court. Accordingly, the Commission recommends that it

    be provided by statute that should any party object to the sale of the

    property by the judgment mortgagee, that party should adduce

    evidence as to the current value of the property.

  22. 21 The Commission provisionally recommends that it be
    provided by statute that should any party object to the sale of the
    property by the judgment mortgagee, that party should adduce
    evidence as to the current value of the property.

Note 1    [1982] IR 143.    [Back]

Note 2   See also Murray v Diamond [1982] ILRM 113. The Supreme Court has not yet pronounced on the issue although Doyle in “Judgment Mortgages” Bar Council Continuing Legal Education Programme 17 October 1994 at 12 notes that in Bank of Ireland v Purcell [1989] IR 327, it dropped a heavy hint that it disapproved of the idea that judgment mortgages were not covered by the Family Home Protection Act 1976.    [Back]

Note 3   Lyall Land Law in Ireland (2 nd ed Round Hall 2000) at 487.    [Back]

Note 4   [1982] IR 143.    [Back]

Note 5   [1982] IR 143.    [Back]

Note 6   As noted above, the Oireachtas may wish to expand on the definition of family home: no specific recommendations are being made in this regard.    [Back]

Note 7   Similarly, consideration might be given to affording this opportunity to adult children with special needs.    [Back]

Note 8   First National Building Society v Ring [1992] 1 IR 375.    [Back]

Note 9   If the amount of the judgment debt is small in comparison to the value of the property, this could point to an incentive to the judgment debtor refinancing the property so as to pay off the judgment creditor. Equally, if the amount of the judgment debt is large in proportion to the value of the property, this may militate against a sale of the property because there may be insufficient equity to enable the judgment debtor to purchase an alternative property.    [Back]

Note 10   The use of the word ‘provide’ rather than ‘purchase’ is reasonable. It appears to us that if there is evidence that the judgment debtor could provide (eg rented) accommodation for his or her family (rather than purchase a freehold) then this should be taken into account by the court. In other words, the mere fact that there is insufficient equity to purchase an alternative property should not of itself be a bar to ordering a sale, so long as the judgment debtor has sufficient means to provide reasonable alternative accommodation.    [Back]

Note 11    [1992] 1 IR 375.    [Back]

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