WHAT TYPE ARE YOU?
In Ireland, a general rule is that anybody who purchased a house with the benefit of a mortgage since approximately 2002 / 2003 is in negative equity. These borrowers are all personally liable for the debt. This is why they cannot simply “hand the keys back to the bank”. This is called a full recourse loan.
We have been working with numerous individuals in varying degrees of negative equity and offering various solutions. Many of the cases can be distilled into the following categories:
1. Jingle mail:
Individuals contact us with the intention of handing back the keys. They have significant arrears and the bank is about to or has initiated repossession Proceedings. Generally these borrowers have no attachment to the property and intend to emigrate or believe that they can avoid the outstanding debt. We have been successful in a number of situations by securing a purchaser for the property and negotiating a write-down of the mortgage. This allows the bank to avoid the risk associated with an empty, uninsured property and costly Court Proceedings.
2. Living with negative equity:
Here are a number of examples of people who are living with negative equity but want to stay in their homes:
Able to meet the repayments. Continue to meet your mortgage repayments and ultimately the market will stabilise and improve.
- Unable to meet the full repayments. Pay the bank what you can which would be a minimum of interest only. The bank will work with you to string the matter along until either your earning capacity or the housing market improves.
- Unable to meet the repayments and the lender is about to or has initiated repossession proceedings. Unlike the “Jingle Mail” borrowers above, these individuals are hoping to stay in their home. However, these individuals have generally “stuck their heads in the sand”. They wish to remain in the home but have not made any attempt to repay the bank. The bank has not received any co-operation from the individuals and simply issue repossession Proceedings. When the order for repossession is made they are generally given a 3 – 6 month stay on the order. We assess these cases on a case by case basis.
3. The Investor
Generally two types of investors, the small investor and larger investor:
- Small investor – Own home still has equity but the second property is now in considerable negative equity. They can be categorised as follows:
- Different bank: The lender on the second property is a different bank. If the investment property is repossessed, the bank may seek to apportion some of the negative equity against the equity in the main residence. However we can still seek to achieve a write-down.
- Same lender; The lender on the second property is the same as the first lender. It is the same as above apart from that the borrower is sometimes in a weaker bargaining position because there is a cross-charge on the main home. Again, we can review the documentation and how the loan was written to negotiate or force a write-down of the mortgage.
- Larger investor – An investor has who has numerous properties with various levels of equity and negative equity with various banks. Generally this person would have equity in their own home and they are worried about the bank moving on their home. We can work with the individual to provide a solution.
How are the banks reacting to the current crisis?
The banks are trying to “kick the can down the road”. They believe that this crisis will pass and the housing market will improve over time. In the meantime, they are in “protection mode” trying to rebuild their capital and therefore squeezing the borrowers for every cent. The banks do not want to and cannot afford to “write-down” mortgages unless it is the last resort i.e. Jingle mail / no cooperation from borrower. Even then, they will only allow a write-down when they are convinced that they have squeezed every cent from the borrower and there are no hidden assets.
How to secure a write-down:
We have all heard stories about the heady days of the Celtic Tiger when the banks were touting their customers to take mortgages. The culture within the banks at that time was simply to lend the money and carry out the due diligence later. The banks are well aware that they made numerous mistakes when writing the mortgages. When we are instructed we take up a copy of your file, review the documentation and see whether there is a case.
In addition, it is arguable that it is not equitable that a bank which recklessly lent money should be allowed to secure a significant judgement against the borrower. There are a number of test cases in the pipeline which we believe will test the current culture of full recourse loans.
In Germany the general rule is that the mortgage is secured on the property by way of a non-recourse loan i.e. the borrower can not be personally liable. We now have a chance to change our culture to one where the bank has to be concerned about the value of the property and not just the individual’s capacity to repay the loan. This would cause the banks to ensure that they are not lending into an overheated property market.
If you know somebody who is struggling with their mortgage repayments and / or is in arrears then we can offer a legal solution based on our extensive experience in this area.