EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 18 February 2019   
on court orders for possession of principal  private residences  
(CON/ 2019/8) 
 
Introduction and legal basis  
On 14 January 2019 the European Central Bank (ECB) received a request from the Irish Departm ent of 
Justice , Equality and Law Reform  for an opinion on the Land and Conveyancing Law Reform 
(Amendment) Bill 2019  (hereinafter the ‘draft law’) . 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Funct ioning of the European Union  and the sixth indent of Article  2(1) of Council Decision 98/415/EC1, as 
the draft law relates to  rules applicable to financial  institutions insofar as they materially influence the 
stability of financial institutions and market s and the tasks conferred upon the ECB concerning the 
prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty . In accordance with the 
first sentence of Article  17.5 of the Rules of Procedure of the European Central Bank , the Governing 
Council has adopted this opinion.  
 
1. Purpose of the draft law  
1.1 The draft law amends the Land and Conveyancing Law Reform Act 2013 ( hereinafter the ‘2013 
Act’), to set out the range of matters which a court is obliged to take into account when de ciding to 
grant a n order for  possession of land  (hereinafter ‘possession order’)  to a mortgagee ( ‘lender ’) in 
respect of a the principal private residence  of a mortgagor ( ‘borrower ’). The stated  objective of the 
draft law is to ensure that  the repossession  of a borrower’s principal private residence should 
remain an action of last resort, when all other possible remedies have failed.  
1.2  The 2013 Act already specifie s the matters  that a court would have to take into account before 
granting an adjournment o f proceedings for a possession order  in respect of a borrower’s principal 
private residence, in order to enable the borrower to secure a Personal Insolvency Arrangement 
(PIA) under the Personal Insolvency Act 2012 , as amended.  
1.3  The draft law is designe d to address cases where the borrower has not secured a PIA under the 
Personal Insolvency Act 2012 , or where the PIA procedure has come to an end2. The draft law 
provides that the court must take into account certain matters  when considering whether to mak e 
or refuse to make a possession order , and may take these matters  into account when considering 
                                                 
1  Council Decision 98/415/EC of 29  June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions ( OJ L 189, 3.7.199 8, p. 42). 
2  Proposed new Section 2A,, subsections 1, 5 and 6  of the 2013 Act, as set out in Section 3  of the draft law.  
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2 whether to make any other order it considers ap propriate in the circumstances3.  
1.4 The first matter referred to in the draft law  is whether the possession order would be proportionate 
in all the circumstances4, having regard to matters such as the total amount that re mains to be paid 
to the lender on foot of the mortgage or any associated loan agreement ; the amount of arrears  of 
payments due on foot of the mor tgage ; the advised market value5 of the principal private residence  
on the date on which proceedings were commenced; and where the lender is not the original 
lender, the advised market value of the principal private residence  on the date on which the new 
lender acquired the mortgage6. 
1.5  The other matters referred  to in the draft law  include the circumstances of the borrower and his or 
her depend ants; whether the lender has made a statement to the borrower of the terms on which it 
would be prepared to set tle the matter in such a way that would allow the borrower  and his or her 
depend ants to remain in their principal private residence; details of any proposal put forward by , or 
on behalf of , the borrower to enable them to  remain in the principal private res idence, including 
through participation in a scheme designed to assist persons in mortgage distress, or to secure 
alternative accommodation ; the response, if any, of the lender to any proposal of the borrower; and 
the conduct of the parties to the mortgage  in any attempt to find a resolution to the issue of dealing 
with arrears of mortgage payments7. The court may also take into account such additional matte rs 
as it considers appropriate8.  
 
2. Observations  
2.1  Interaction with the existing national framework  
 The ECB takes note of the clarifications provided  in the draft law on the matters  that must be taken 
into account by the courts when deciding to grant  a possession order  to a lender in respect of a 
borrower’s principal private residence. The ECB understa nds that  the matters listed in the draft law  
partly reflect  the case law of the Irish Supreme Court9 on this topic , and the Code of Conduct on 
Mortgage Arrears , introduced by the Central Bank of Ireland (CBI) in 2013 , while  the draft law  also 
expressly sets out the range of matters which a court is obliged to take into account  when 
considering whether to make or refuse a possession  order . 
2.2 Effects on the banking sector  and on financial stability  
2.2.1  In the context of its direct responsibility for the supervision of significant banking groups within the  
euro area, the ECB closely monitors the stability of credit institutions. The high level of non -
performing loans  (NPLs)  in Ireland has brought large credit losses to Irish banks in the recent past. 
Thus,  it is important that NPLs  are dealt with in an efficient and effective manner, balancing the 
need to ensure, on the one hand, observance of the general duty of debtors to meet their  payment 
                                                 
3  Proposed new Section 2A, subsection 2 , as set out in Section 3  of the draft law.  
4 Proposed new Section 2A, subsection 3 , as set ou t in Section 3  of the draft law.  
5  As defined in the proposed new Section 2A, subsection 9, as set out in Section 3 of the draft law. 
6  Proposed new Section 2A, subsection 4 , as set out in Section 3  of the draft law.  
7  Proposed new Section 2A, subsectio n 3, as set out in Section 3  of the draft law. 
8  Proposed new Section 2A, subsection 2 , as set out in Section 3  of the draft law.  
9   Launceston Property Finance Limited v Burke , [2017] IESC 62.  
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3 obligations and, on the other hand, the need to provide assistanc e to individuals in dire  financial 
situations10. 
2.2.2   On the one hand, the draft law adds to  the existing protections and procedures for distressed 
borrowers under the CBI’s Code of Conduct on Mortgage Arrears 2013, the CBI’s  Consumer 
Protection Code  2012, the Land and Conveyancing Law Reform Act 2009, the Land and 
Conveyancing Law Reform Act 2013 and the P ersonal Insolvency Act 2012 . The draft law will 
ensure that where these existing avenues have been exhausted, and the lender applies to the 
court for a possession order , the borrower will have a further opportunity for matters, including his 
or her  personal circumstances, and his or her proposals in respect of the mortgage , to be taken 
into account . The draft law does not specify what significance  or rel ative weight a court should 
assign to  the matters t hat must be taken into account in making or refusing to make a possession 
order .  
2.2.3  On the other hand, l ong-term mortgage arrears are considered to be  the most  critical part of the 
NPL stock in the Ir ish banking sector. R epossession  activity remains relatively limited, and the 
length of proceedings  continues to be protracted11. The various matters  which the draft law 
requires the court to take  into account  are likely to result in lengthy submissions and  may provide 
additional grounds for appeal , particularly given the uncertain ty regarding the  significance and 
relative weight of some of the matters the court  must take into account . Thus , it is important to 
consider the likelihood that the  draft law will exacerbate the protracted nature of proceedings, and 
increase the associated legal costs , including  for distressed borrowers . The negative impact of 
protracted proceedings on lenders, particularly in respect of the contemporaneous value of a 
borrower’s collateral  and in respect of secondary markets for credit institution  assets , should also 
be considered.  
2.2.4  The ECB underlines that t he ability of financial institutions to  effectively manage credit risk depends 
on a reliable, predictable and stable legal framework that  adequately balances the interests of both 
the creditor and the debtor.  In this respect, it is important to carefully consider the impact of  the 
draft law in order to ensure legal certainty, and to prevent moral hazard from  arising in the 
relations hip between creditor and debtor12. If banks  (or secondary market purchasers of assets ) are 
deprived of efficient tools to work out NPLs in an effective  and timely  manner, this could result in 
unnecessarily high levels of NPLs and private sector debt , which in turn have an adverse impact on 
financial stability and could undermine future credit supply13. Moreover, when  pricing mortgages, 
banks  take account of many factors,  including the actual and future cost of funding, expenses and 
overhead s, the cost o f capital, and  expected credit losses.  The impact of the draft law  on these 
factors , and in particular on the ability of the lender to enforce security and the potential 
corresponding increase in default rates , should also be carefully considered . This is because  
additional costs are likely to be passed on to future borrowers , and could  result in a  significant 
impact on mortgage pricing and availability . 
                                                 
10  See paragraph 2.2.1 of Opinion CON/2018/13  and paragraph 3.1 of Opinion CON/2013/34 . All ECB opinions are 
published on the ECB’s website at www.ecb.europa.eu  
11  European Commission, Post -Programme Surveillance Report. Ireland, Spring 2018, 6 July 2018, page 17. 
12  See paragraph 2.2.3 of Opinion CON/2018/13 and paragraph 2.2 of Opinion CON/2015/56.  
13  See paragraphs 2.2 and 2.3 of Opinion CON/2015/14.  
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4 2.3 Effects  on secondary markets for credit institution assets  
2.3.1 The ECB has been a strong proponent  of the development of secondary markets for credit 
institution assets, particularly NPLs, as reflected in the EU Council’s action plan to tackle NPLs in 
Europe14. In the context of the large stocks of NPLs that remain on the balance sheet of some 
European credit institutions, and as part of a comprehensive solution to NPL resolution15, the 
development of secondary markets may contribute to reducing NPLs. Looking ahead, well -
functioning secondary marke ts may also prevent stocks of NPLs building  up in the futu re. 
2.3.2 Moreover, a well -functioning secondary market for bank assets may have a positive effect on 
financial stability to the extent that it could facilitate the transfer of the risks of NPLs  off credit 
institutions’ balance sheets. The presence of s ignificant volumes of NPLs on credit institutions’  
balance sheets reduces their ability to fulfil their function as providers of credit to the real economy 
and hampers the operational flexibility and overall profitability that are essential to a well -
function ing banking sector. It is essential that the national legal framework applicable to secondary 
markets enables the efficient transfer of NPLs off the balance sheet of credit institutions.  
2.3.3 The ECB notes that in the context of the court’s consideration of whether the possession  order  
would be proportionate in all the circumstances16, the inc lusion of one particular matter in the draft 
law would merit furthe r reflection by the legislators. That is, where the lender is not the original 
lender, the court may  have regard to  the advised market value of the principal private residence at 
the date on which the new lender acquired the mortgage . In that respect, the ECB notes  that 
borrowers will benefit from the CBI’s  Code of Conduct on Mortgage Arrears 2013 , the Consumer 
Protection Code  2012 , and  Part V of the Central Bank Act 1997, as amended by the Consumer 
Protection (Regulation of Credit Servicing Firms) Act 2015  and the Consumer Protection 
(Regulation of Credit Servicing Firms) Act 2018 , which provides for the  regulation of credit 
servic ing17. These protections apply regardless of whether the mortgage is  owned or  serviced by 
the original lender, or by a credit servicing firm18. The ECB would welcome further clarity in respect 
of how consideration of this matter w ould assist the court in its proportionality assessment, in light 
of the objective of the draft law to ensure that the repossession of a borrower’s principal private 
residence remains an action of last resort . The draft law should also consider how  issues of 
adverse selection may be avoided . While lenders remain responsible for prudently assessing 
collateral values, it is important to maintain sufficient incentives for repayment and effective 
safeguards to prevent strategic defaults.  
2.3.4  In this context,  the draft law must carefully  balance the benefits of creating well -functioning 
secondary markets against the impetus to protect borrowers . The provision of  the draft law  
                                                 
14  See the  Council  of the European Union ’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to 
tackle non -performing loans in Europe’, available at: http://www.consilium.europa.eu/en/press/press -
releases/2017/07/11/conclusions -non-performing -loans/ . See also Opinion CON/2018/31. 
15  See, for example, Special features, Section B of the ECB’s November 2016 Financial Stability Review, available at: 
https://www.ecb.europa.eu/pub/pdf/other/sfbfinancialstabilityreview201611.en.pdf . 
16  Pursuant to the proposed new Section 2A, subsection 3, point (a) of the 2013 Act, as set out in Section 3 of the draft law.  
17  Following the amendments made to Part V of t he Central Bank Act 1997 by the Consumer Protection (Regulation of 
Credit Servicing Firms) Act 2018 , the term ‘credit servicing’ in relation to a credit agreement is defined  to include 
holding the legal title to credit granted under the credit agreement.  
18  See Launceston Property Finance Limited v Burke , [2017] IESC 62 at paragraph 57. See also paragraph 2.4.1 of 
Opinion CON/2018/31 and paragraph 2 of Opinion CON/2014/69.  
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5 whereby the court may take into account  the advised market value of the principal pri vate 
residence at the date on which an investor  acquired the mortgage  may be perceived as placing 
investors  at a disadvantage , as it is unclear what significance a court should assign to this 
information in its decision . This  could impede investors’  partic ipation in secondary markets, thereby 
reducing overall participation and reducing price competition in the market place. Even if the 
provisions of the draft law do not result in reduced participation by investors, investors may pass 
the costs associated wi th such a  perceived  disadvantage  onto the credit institutions selling the 
assets. As such, risks to financial stability may emerge either as a result of a failure to develop 
secondary markets or because prices in those markets are subdued by regulatory cos ts. 
2.3.5  While risk transfer through asset sales, securitisation and other measures may be effective in 
reducing NPLs, risk reduction measures remain, nevertheless, an important channel, particularly in 
a context where NPL stocks are high. In that regard , and in the context of a comprehensive 
solution to NPL resolution, the originating credit institutions’ internal procedures for handling the 
work -out of NPLs themselves will remain important.  
 
This opinion will be published on the ECB’s website.  
 
 
Done  at Frankfurt am Main, 18 February 2019.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI