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Saturday 16 December 2017

Dan White: Repossessions will rise until we make insolvency viable

Brian O'Donnell and son Blake at the Commercial Court
Brian O'Donnell and son Blake at the Commercial Court

MUCH attention has been focused over the past week on the farcical attempts by solicitor-turned-property-speculator Brian O'Donnell to prevent Bank of Ireland from seizing his 9,000 square foot mansion in the upmarket Dublin suburb of Killiney.

At the same time as Mr O'Donnell was jousting with Bank of Ireland to hang on to his "bog standard" home, 219 other families were, for example, being dragged through Limerick Circuit Court by lenders seeking to repossess their homes.

Yesterday it was reported that 98 familes were facing repossession orders before Dublin District Court.

That is just the tip of the iceberg. Between them the banks are now seeking to repossess no fewer than 7,000 homes across the country.

There is almost certainly much more to come. Mortgage arrears statistics published last week showed that over 79,000 mortgages - including principal private dwellings and buy-to-let properties - were more than a year in arrears at the end of 2014.

While the problem of long-term mortgage arrears shows no signs of easing there are growing signs that, despite the Government's attempts at reform, the personal insolvency crisis is also getting worse.

This is because the banks are using the effective veto which they were granted under the 2012 Personal Insolvency Act to block deals with over-extended borrowers. The Act, supposed to make things better, has ended up by making them even worse.

While the 2012 Act also deals with unsecured debt, it is the billions of euro of mortgage arrears that lie at the heart of the Irish personal insolvency crisis.

Unless and until some way can be found of forcing the banks to realistically engage with borrowers in long-term mortgage arrears, things are going to get worse rather than better.

At the time of its passage, great play was made of the fact that the 2012 Act reduced the period after which bankrupts could walk away from their debts from twelve to three years. Well, sort of.

The 2012 Act also allowed a five-year claw-back period during which the banks could come back for more if a discharged bankrupt received an unexpected financial windfall such as an inheritance or a lottery win. This meant that the effective discharge period was only reduced from twelve to eight years.

This claw-back made bankruptcy a far less attractive option than would have been the case if the Government had opted from a no-frills three-year period. This is something that the banks have ruthlessly exploited.

It's now time to revisit the 2012 Act. We should follow the example of the United States and Britain and reduce the period after which bankrupts can walk away from their debts to just 12 months. The only exceptions to this should be where the bankrupt makes an inaccurate or incomplete disclosure of their financial affairs when applying for bankruptcy.

But, I hear you say, won't making it easier for over-stretched borrowers to declare themselves bankrupt increase the number of people who end up losing their homes?

Yes and no. As things currently stand the banks hold all of the cards when a borrower seeks to restructure his or her debts.

bankruptcy

They know that bankruptcy is still a last option and most people don't want to financially handicapped for up to eight years. Far better to take whatever the bank is offering.

Cutting the bankruptcy period to 12 months changes the balance of power between bank and borrower.

Yes, the borrower will lose his or her home if they opt for bankruptcy, but at the end of 12 months they can walk away from their debts, while the bank will have to make do with whatever it can get from selling the house.

Suddenly the incentive for the bank to cut the borrower some slack is massively increased.

Ministers should stop complaining about the unwillingness of the banks to do deals with borrowers and change the law which encourages such unreasonable behaviour instead. Until they do, the banks will continue being absolute and utter, well, bankers...

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