‘What does that all mean?” This is what one man asked in Bray Circuit Court last Monday morning. Simon [name changed] had just lost his home. The registrar ruled against the ‘defendant’ and in favour of the bank seeking possession of the property. She ordered a five-month stay to allow Simon time to find alternative accommodation.
Simon had no legal representation in court, nor appears to have had access to financial expertise. He stood near the front of the court as the ruling was made.
When the registrar finished, Simon turned, and as he made his way towards the doors at the back, he leaned in to whisper the same question to several people seated on the long wooden benches – “What does that all mean?”
Simon’s repossession case is one of tens of thousands being heard in courts across Ireland this year. It highlights many of the policy failures relating to the mortgage crisis, and provides a clear map for what needs to change.
Here’s the easy analysis: Simon hadn’t made any mortgage payments since 2011, so the bank was perfectly entitled to seek possession of the property. He clearly didn’t voluntarily surrender his home, and so forced the bank, and the State, to incur significant costs in taking it from him. So, tough luck Simon.
Fair enough – nobody can be expected to retain a property indefinitely if they don’t pay their mortgage – otherwise, there’d be no mortgage market and so very little home ownership. People should engage with their lenders, and they should make payments if they can. But the reality is far more complicated than that.
In Simon’s case, many questions need to be asked, none of which was brought up in court. When the arrears began, did he have access to expert financial advice? Did he have access to legal expertise? Could a restructure, such as a split mortgage, have been designed to avoid the arrears?
Were heavy penalties applied for non-payment? Was a punitive interest rate applied to the arrears? Was there equity left in the property? If not, once the property was sold, was the bank intending on pursuing him for the residual debt? Might he have qualified for the mortgage-to-rent scheme? Had a personal insolvency practitioner, PIP, been involved to negotiate a restructure with the bank? Was the repossession at least part of a deal that provided a path back to solvency?
Worst case, let’s say there was never any chance he could have kept paying his mortgage, and was in negative equity. Then this should have been determined years ago, to avoid mounting debts. A voluntary surrender could have been part of a deal that resolved any residual debts, letting him get on with his life. Maybe he would have qualified for the mortgage-to-rent scheme, again getting to stay in the property.
Best case, the mortgage might have been restructured to allow him keep his home. Or there might have been enough equity left in the property to set him up with a modest apartment. In either case, he, the bank, and the State would have avoided a lot of aggravation, legal costs and court time.
On Monday in Bray, 10 orders for repossession were granted. In eight of these cases, the ‘defendants’, as the home-owners are referred to, didn’t show up. The two who did, including Simon, appeared without legal representation. Most of the 10 cases hadn’t any mortgage payments made in several years. But not all – one case involved a payment just last month (Bank of Ireland was repossessing this home). Another involved arrears of only €16k, and a mortgage of just €10k.
The registrar did her best, repeatedly stating that borrowers must engage, and that time tended to work against them, as arrears, and interest owed, mounted. But she, and the other registrars and judges around the country, are adjudicating over a process made impossible by weak policy and legislation.
There must be an independent appeals process so proposed restructures can be deemed fair and consistent. The mortgage-to-rent scheme must be improved and used more widely. The totality of borrowings must be considered, including unsecured and residual debts. Bankruptcy should be reduced to one year, at least until the mortgage crisis is resolved. The insolvency process must be simplified and the power rebalanced between borrower and lender.
It is imperative that borrowers get access to financial and insolvency expertise and to legal representation. Many wealthier borrowers have this – they can travel to the UK or the US to avail of one-year bankruptcy. They can hire PIPs to negotiate debt restructures with their banks. They have barristers to argue their case in court. But many, many thousands of individuals and families do not – and as with the Bray court on Monday morning, this can land them in a world of avoidable grief.
Government policy could turn this situation around overnight – it should have done so four years ago, but it is still better late than never.