Loan Sales: Can a Bare Trustee Enforce a Mortgage on its Own?

The High Court recently considered who needs to be involved in enforcement proceedings where the legal and beneficial interest in a mortgage loan has been split between two separate parties.


In Pepper Finance Corporation (Ireland) DAC v Jenkins,1  the plaintiff ("Pepper") sought an order for possession of the defendants’ family home following their default on a mortgage taken out in 2008. In the intervening years, that mortgage had been included in a loan sale and sold to a third party, ("Windmill"), which now held the beneficial interest in the asset.  Pepper retained the legal title as a bare trustee for Windmill.

The defendants resisted the application for possession arguing that even though Pepper had retained the legal title to the defendants’ loan and related security, Pepper should have either joined Windmill (as sole beneficial owner) in the proceedings as co-plaintiff, or alternatively made it clear that Pepper was issuing proceedings as bare trustee on behalf of Windmill. It was argued that this was an essential prerequisite to a plaintiff’s entitlement to succeed against the defendants, so that the defendants were not exposed to the risk of being sued separately by Windmill in respect of the same debt.

Issue for Decision

The court noted that, while it is clear that the holder of bare legal title to a loan may bring enforcement proceedings, the more nuanced question of how the proceedings must be formulated had not yet been considered by the Irish courts.  The core issue for the court to decide was: 

may the owner of a loan and related security, who has divested itself of the entire beneficial interest in that loan and related security, and whose interest in the same is no more than that of a bare trustee, issue proceedings in its sole name against the borrowers for recovery of the debt and/or possession of the property secured in respect of that debt, and without making any reference at all in the proceedings to its status as trustee on behalf of a third party?”.

Deciding this question Binchy J held that a bare trustee of legal title could, basing his decision around the issue of notice. He said that if a debtor had received notice of an assignment and, more particularly, had been directed to make payments to the assignee (Windmill), then it was imperative that the assignee should be a party to the proceedings because in those circumstances the debtor would otherwise be exposed to a risk of separate proceedings being brought by the assignee. (While not discussed, such notice would usually have the effect of vesting the legal title in the assignee making proceedings by the assignor untenable). 

However, where no such notice had been given, as was the case here, the same considerations did not arise. In the absence of notice, the debtors were obliged to continue making repayments to Pepper (the plaintiff) and Windmill (the beneficial owner) could not make any claim against them (at least not without disclosing that Pepper held the legal title). He concluded that the risk that a borrower could be subjected to more than one suit in respect of the same debt was more illusory than real and the courts would not countenance such a proposition.

This decision provides a sensible and welcome clarification of a novel procedural question and reaffirms Irish law’s recognition of arrangements based on trusts.

  1. [2018] IEHC 485.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.