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|Loose ‘mortgage’ definition casts legal net too wide|
|The Sunday Business Post, 22 August 2010 |
By Tim O'Connor
|Mortgages were a standing obsession in this country in the boom. Now, in the bust, they still are.|
However, it’s mortgage debts, negative equity and how people will pay their mortgages that are now the subject of conversation What may not be known is that there has been a substantial change in the legal definition of a mortgage.
What is even less well-known - or even suspected - is that this change may well affect areas it was never intended to, with disturbing effects.
The 2009 Land and Conveyancing Law Reform Act was passed by the Dáil this time last year in a guillotine and came into effect last December. Its 133 sections include 25 on mortgages and mortgage enforcement.
It also contains a definition of a mortgage. Mortgages over land are familiar to most people, but many other kinds of property are also mortgaged - ships, for example. So any definition of a mortgage would have to reflect this.
The definition in the 2009 act says that a mortgage ‘‘includes any charge or lien on any property for securing money or money’s worth’’.
‘‘Property’’ is defined in the same section as including property of any kind, land or otherwise. So, from the definition, any charge, lien or security over any property for anything that can be valued in monetary terms is now a mortgage.
Mortgages over land have to be created by a deed, but there is no restriction on how mortgages over other property are created.
This may seem innocuous, but it’s not. To understand why, one has to look at just what is covered by this definition.
Go into a DIY shop or a builders’ providers, buy something and take a look at the bottom of the receipt. In almost any such shop, there will be a line on the receipt saying that no property in the goods passes until the goods are paid for in full.
This retention-of-title clause allows the seller to get his goods back if they’re not paid for.
However, it has long since been settled in the courts that this represents a charge over those goods. In almost every case, it’s securing the payment of money - or certainly money’s worth.
Under the definition in section 2 of the 2009 act, that means it’s a mortgage.
It also means the retention of title clause can’t be enforced in the normal way in which these clauses always have been, or by the seller simply taking back his goods. It now has to be enforced by the long, more complicated mortgage enforcement provisions in the 2009 act.
There are other examples. Floating charges over a company’s assets, personal loans secured on assets, solicitors’ liens over papers to ensure that clients pay, possibly even a car loan with the charge over the car - all would now be mortgages and have to be enforced under the 2009 act.
Enforcement under the 2009 act is neither simple nor quick for a creditor. It was designed to give more rights to those in trouble with banks.
For example, it abolishes foreclosure and, in section 94, it specifically prevents taking possession of mortgaged property without a court order.
The effect of this on the operation of retention-of-title clauses can well be imagined.
Presumably, it was never intended that car loans - or retention of-title clauses, or the other forms of security caught under this definition - would be so caught. However, under the absolute definition in the act, they are caught and this affects how normal business is done, at a time when this is certainly not helpful to traders.
There is a way to solve the problem. Minister for Justice Dermot Ahern has the power to amend the 2009 act by any means necessary to ensure it operates properly.
This would seem a proper case in which to exercise that power. Businesses don’t need uncertainty over security or debt-collection in a recession.
The faster this is put beyond doubt and the faster any potential problems are headed off, the better.
Tim O’Connor is a practicing barrister.