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Financial Services Update: Loan Sales – Who Can Enforce?

25 September 2018

The High Court has recently clarified that unless a borrower is notified of the assignment of its loan, the assignor, holding the legal title to the loan, can bring proceedings in its own name and on its own behalf[1]. It does not have to join the beneficial owner or make clear that it is issuing proceedings as bare trustee on behalf of the beneficial owner.

Background

The borrowers took a loan from, and executed a related mortgage and charge in favour of, GE Capital Woodchester Home Loan Ltd (GE) (later known as Pepper Finance Corporation (Ireland) Ltd, (“Pepper”)). Pepper subsequently securitised the loan to a third party, Windmill which had the effect of transferring the beneficial interest in the loan and security to Windmill, leaving the legal interest to Pepper. Consent to the securitisation was given in advance by the borrowers upon acceptance of the letter of loan offer and in the deed of mortgage as is common banking practice.

Issue

Pepper sought an order for possession of the borrowers’ family home. The question for the Court was whether or not Pepper, as owner of the legal title to the loan and related security had to bring the proceedings in such a way as to make it clear that it was doing so as trustee for Windmill, the beneficial owner, or alternatively require Windmill to join in the proceedings also. This is the first time that this question has been considered by an Irish court. The borrowers submitted that this was no mere procedural requirement but an essential prerequisite to Pepper’s entitlement to succeed as against the borrowers, so that the borrowers would not be exposed to the risk of a double jeopardy situation arising, ie a risk that the borrower may have to pay twice.

Notice of assignment

The Court noted that if a borrower was given notice that its loan was assigned to an entity and, more particularly, was directed to make payments to that entity, then it is obviously imperative that the entity should be a party to enforcement proceedings because otherwise the borrower would be exposed to the risk of double jeopardy.

Decision

Noting that both Pepper and Windmill chose not to give notice of the securitisation of the debt to the borrowers, the Court decided that unless borrowers are specifically put on notice of such an assignment, the risk that a borrower could be subjected to more than one suit relating to the same debt is more illusory than real and that the courts would not support a proposition like this.

The Court decided that Pepper was not obliged to join Windmill to the proceedings or to declare its status as trustee of Windmill in the proceedings. Pepper was therefore entitled to succeed and the appeal was allowed.

Conclusion

It appears from this decision that unless notice of an assignment of a loan has been given to a borrower, where the assignor has retained legal title to the loan, it can bring proceedings in its own name and on its own behalf. It does not have to join the beneficial owner or make clear that it is issuing proceedings as bare trustee on behalf of the beneficial owner.

For more information on this judgment, contact a member of our Financial Services or Insolvency & Restructuring teams.


[1] Pepper Finance Corporation (Ireland) DAC v Jenkins & Anor [2018] IEHC 485

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