Court Ruling on Mortgagee Bank’s obligations after Mortgaged Property Sale

December 2018

Whitney Moore successfully defended proceedings instituted by a dispossessed Mortgagor against a Mortgagee Banking client in connection with its handling of surplus monies after the sale of a mortgaged property by it as mortgagee in possession in exercise of its power of sale (Walsh v The Governor and Company of the Bank of Ireland: 12 October, 2018).

The Plaintiff/Mortgagor contended that the Bank’s refusal to hand over to him the entire net sale proceeds resulted in the loss by him of a prior settlement compromise he said he had agreed with another creditor, which held a judgment mortgage over the subject property ranking after the Bank’s Mortgage (it being, in fact, one of several such judgment mortgagees but the only one whose judgment was still under 12 years’ old). The Plaintiff claimed damages for the difference in the sum agreed in the lost settlement agreement and what he actually owed under the judgment mortgage, as the judgment mortgagee was now insisting on a full recovery. The Plaintiff/Mortgagor also claimed that, while there were a number of other registered judgment mortgages, since all were over 12 years old, all should have been presumed, without enquiry, to be statute-barred under the Statute of Limitations Act, 1957.

The Bank argued that it held the net sale proceeds as a statutory Trustee pursuant to section 21(3) of the Conveyancing Act 1881 (the mortgage being a pre-2009 one) and that, since there could be circumstances of which it could not be aware, which would have caused the limitation period to stop running in respect of any such older judgment mortgage – such as an acknowledgment or a part-payment or the commencement of Circuit Court proceedings (for which there are inadequate public search facilities) – it was obliged to ascertain, by way of appropriate enquiries, who was the next in priority and, once it had this information, it was under an obligation to release the entire net sale proceeds to that next encumbrancer – who would take and also hold such, after deducting what was lawfully owed to him/it, as a statutory Trustee for the next encumbrancer in priority, and so on.

The Court (Creedon J.) accepted the Bank’s submissions that it held as Trustee and as such was under an obligation as release the net sale proceeds only to the next entitled encumbrancer ­– not to the Plaintiff/Mortgagor. The Court further accepted that:

‘…..the mortgagee is obliged and entitled to make reasonable efforts to ascertain the subsequent encumbrancers in order that it can properly discharge its duty as trustee.’

As the Bank had followed the applicable law, the Plaintiff’s claim for damages failed. Costs followed the event and were awarded to the Bank against the Plaintiff/Mortgagor, to be deducted from the fund.

For further information please get in touch with your usual Whitney Moore contact, Brendan Moriarty or any member of our Banking and Recoveries team.