Banks ‘stalling’ over mortgage debt shortfalls
A leading insolvency expert has accused the banks of “duping” customers in the pursuit of mortgage shortfalls in cases where customers have been forced to sell their homes or buy to let properties.
Ireland’s major lenders have stated that they are pursuing shortfalls on mortgage debt following the sale of homes by debtors or banks. By law the banks have six years in which to issue debt recovery proceedings. However, in a large number of cases “no efforts have been made to recover monies owed”, says Ryan Stewart, managing director at insolvency practices Even Keel Financial (UK) & Stewart Brown (ROI).
Mr Stewart says the inactivity by the banks in pursuing such debt has the effect of “lulling customers into a false sense of security” and influencing their decisions against declaring bankruptcy or engaging in the new insolvency process.
He accused the banks of “stalling” until the customers manage to get their finances in order.
“It seems the banks are being very clever in that they are not initially pursuing shortfalls on mortgage debt from customers. This is a common theme in a number of the cases that I have come across and is questionable behaviour to say the least.”
Mr Stewart adds: “Customers must remember that the banks are permitted by law to recover such debt for a period of six years. While I am in no way encouraging banks to pursue customers – definitive write-off of debts are necessary to move the economy forward, and debt forgiveness is important step in the right direction - banks are not clearly showing their intentions to distressed borrowers, who have sacrificed properties in the past, whether through repossession, voluntary surrender or in the case of investment properties, by the appointment of receivers.
“The perception from some debtors is that they have felt that the surrender of the property was enough to have the bank conclude their business with them, despite an outstanding shortfall remaining, and no agreement regarding the outstanding shortfall. With banks silent on shortfalls from already disposed properties, the failure by banks to initiate proceedings early on would suggest that they are stalling, to give the impression that they are writing off the debt shortfalls by simply not pursuing the debts further.”
“This kind of tactic appears to be designed to encourage customers to believe they need not entertain the difficult decision of declaring bankruptcy in order to get on with their lives. With the banks stating that they engage reasonably with customers on a case-by-case basis, this means that the bank will examine their situation today, but allows them latitude to re-engage in the future if a person’s circumstances improve. For those with debts hanging over them, if they get back on their feet in the next few years, they could very well find themselves facing legal action in the future.”
“Customers with outstanding mortgage debt after the sale of their properties need to be aware that the shortfall can be pursued at any time within six years from the date of sale. Those who take the difficult decision to declare bankruptcy now, will not have that debt hanging over them over the longer term, as they will be debt free and discharged after only 12 months, and when they do take advantage of the fresh start that bankruptcy affords them, their creditors can take no further action to recover the shortfalls that remain.”
Lawyer Garry Clarke explains that although bankruptcy is a “last resort” an increasing number of people with mortgage debt shortfalls are now considering it.
“With the knowledge that their debts haven’t been cleared even after the sale of their homes, more and more people are looking at the bankruptcy option. The debt on mortgage shortfalls does not become statute barred for a period of six years whereas the new bankruptcy regime allows people to start afresh within just 12 months. Faced with those options, many see bankruptcy as the only definitive solution to get their lives back on track. People want the security of not suddenly finding themselves back in financial turmoil several years down the line.”