Mortgages: Irish judge opens the way for millions of disputes over repossessions

The facts are, on the face of it, simple. The couple borrowed money to buy a house and fell into arrears. Under the terms of the mortgage, the lender sought to enforce its security.

Mr Byas is, at least in part, a victim of the financial crisis that afflicted the whole financial sector. He claims that he had additional security which he could sell to repay the arrears. That additional security was shares in a UK "private equity firm." That, he considered, would be sufficient to cover the 850,000 euro they borrowed to fund the purchase and extensive renovations.

However, the private equity firm folded, taking with it any value there was in the shares. Somehow, and it is not yet clear quite how, it also took the value he had in shares in a "pension fund, banks and insurance companies," according to his court papers. That, he says, left his family with no income and no assets with the consequence that the couple could not afford the repayments to the building society.

Mr Byas has has six months since the original order was made: it was due to expire at the end of this week. But, he told the court, he had been told benefits were not available to him as a formerly self-employed person and he "intended to formally apply for benefits this week." He had found it impossible to find work despite great efforts.

The couple is represented by a kind of lawyers co-operative called New Beginning (www.newbeggining.ie) which says "It is estimated that 36,000 mortgages are in arrears of three months or more and that 17,000 households currently cannot pay their mortgage and are receiving mortgage interest supplement." It intends to help pro bono and describes itself thus: "New Beginning is a recently formed group of business people, lawyers and concerned citizens coming together in an attempt to deal with the most pressing social, economic, legal and political issue facing Ireland today."

Before the Judge, it has been put: "powers to registrars to make such “severe” orders with far-reaching effects interferes with the necessity for proper administration of justice. The order is not justified as necessary in a democratic society and is disproportionate, having regard to the significance of the rights interfered with, it is contended. The law and practice here concerning applications for possession of a family home on foot of a mortgage is incompatible with provisions of the European rights convention because it is made in the absence of independent consideration of proportionality of the order in light of the rights of home dwellers, it is also submitted."

That's all well and good. And nicely legalistic. But for the Byas family the matter is simpler: Mr Byas says in his affidavit that, if the order is made, he and his family will become homeless.

That's where the case becomes problematic for the wider industry.

The argument is technical and is couched in terms that a repossession case is too important to be handled by a junior judge. That flies in the face of at least 70 years of legal procedure and has, on the face of it, little chance of success. For a Registrar has to be satisfied as to certain facts and, if they are proved, he has little discretion over the making of a repossession order. The Registrar does have greater discretion over the effective date of that order and, in the case of the Byas family, he exercised it giving them an additional six months to try to fix their financial position. Instead, it got worse. Arguably, that proves that the system is working and offering appropriate protection to borrowers.

It is the second plank of the application which causes more concern: the argument that there should be "independent consideration of proportionality of the order in light of the rights of home dwellers."

First, if the court were to find that the rights of the Dyas family is breached under EU law, then the value of all home-mortgage loans is thrown into doubt. That has an immediate and devastating effect on the balance sheets of all home-loan lenders across the EU. The cost of recovery would escalate - and there is little doubt that any review of terms would include the provision that the borrower is liable for both sides' legal costs in the event of repossession actions.

Secondly, it will not be known, when a home is valued, if the loan can be recovered. The Court will be invited to second guess the terms - in effect to retrospectively re-write the loan agreement. That means that financial institutions will not be able to accurately value their asset portfolio. And that, as we have seen in the past three years, means their ability to raise working capital will suffer.

The case is of great importance to a family living in a large house in Dublin which they can no longer afford and which, they say, they have been unable to sell.

But it is equally important to the financial sector across Europe. There is a long way to go before the case ends up in the European Court of Human Rights, if it ever does.

But in the meantime, a decision in favour of the Byas family could have a devastating effect on the asset values of already beleaguered Irish banks who, simply by reason of this case having got as far as it has, must now have regard to the value of their property loan portfolio.

Hint: it's gone down.