Opinion of the European Central Bank of 18 February 2019 on court orders for possession of principal private residences (CON/2019/8) 
Date: 2019-02-18
Institutions: European Central Bank
Subjects: Ireland, banking supervision, claim, debt, financial solvency, financial stability, mortgage, national law, residence

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 Department 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 
Functioning 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  markets  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 deciding to 

grant  an  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  specifies  the  matters  that  a  court  would  have  to  take  into  account  before 

granting an adjournment of 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 designed 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 make 

or refuse to make a possession order, and may take these matters into account when considering 

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2  

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, 3.7.1998, p. 42). 

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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whether to make any other order it considers appropriate 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 remains 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 mortgage; 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 dependants; whether the lender has made a statement to the borrower of the terms on which it 

would be prepared to settle the matter in such a way that would allow the borrower and his or her 

dependants 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  residence,  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 matters 
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 understands 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  
4 

5  
6  
7  
8  

9    

Proposed new Section 2A, subsection 2, as set out in Section 3 of the draft law. 

Proposed new Section 2A, subsection 3, as set out in Section 3 of the draft law. 
As defined in the proposed new Section 2A, subsection 9, as set out in Section 3 of the draft law. 
Proposed new Section 2A, subsection 4, as set out in Section 3 of the draft law. 
Proposed new Section 2A, subsection 3, as set out in Section 3 of the draft law. 
Proposed new Section 2A, subsection 2, as set out in Section 3 of the draft law. 
Launceston Property Finance Limited v Burke, [2017] IESC 62. 

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obligations  and,  on  the  other  hand,  the  need  to  provide  assistance  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  Personal  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  relative  weight  a  court  should 

assign to the matters that must be taken into account in making or refusing to make a possession 

order.  

2.2.3  On  the  other  hand,  long-term mortgage  arrears  are  considered  to  be  the  most  critical  part  of  the 

NPL  stock  in  the  Irish  banking  sector.  Repossession  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  uncertainty  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 the 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 
relationship 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 

overheads,  the  cost  of  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  

11  
12  

13  

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 
European Commission, Post-Programme Surveillance Report. Ireland, Spring 2018, 6 July 2018, page 17. 
See paragraph 2.2.3 of Opinion CON/2018/13 and paragraph 2.2 of Opinion CON/2015/56. 
See paragraphs 2.2 and 2.3 of Opinion CON/2015/14. 

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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  resolution 15,  the 

development  of  secondary  markets  may  contribute  to  reducing  NPLs.  Looking  ahead,  well-

functioning secondary markets may also prevent stocks of NPLs building up in the future. 

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  significant  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-

functioning 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 inclusion of one particular matter in the draft 

law  would  merit  further  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 
servicing17.  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 would 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  

15  

16  
17  

18  

loans 

See the Council of the European Union’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to 
in  Europe’,  available  at:  http://www.consilium.europa.eu/en/press/press-
tackle  non-performing 
releases/2017/07/11/conclusions-non-performing-loans/. See also Opinion CON/2018/31. 
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. 
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. 
Following the amendments made to Part V of the 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. 
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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whereby  the  court  may  take  into  account  the  advised  market  value  of  the  principal  private 

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’ participation 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  with  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 costs. 

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 

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