Recent developments in the Commercial Litigation and Insolvency world indicate that action is imminent that will seek to address the growing mortgage arrears crisis in Ireland. In recent times, the Irish banks have been in a state of limbo, limited in their powers to resolve the problem and unable to effectively differentiate between those who are unable to pay their mortgage and those who are unwilling to pay their mortgage.
Homeowners who fall behind with mortgage repayments face increased scrutiny under a new Central Bank Code of Conduct on Mortgage Arrears (the “Code”). The new code removes a 12 month moratorium on legal action designed to protect homeowners vulnerable to repossession. This is also likely to apply to those already in arrears.
Due to be published imminently, the Code instead gives homeowners who have exited the Mortgage Arrears Resolution Process (MARP) two months before legal action can be taken against them.
The code also reduces the protection to homeowners from excessive contact from banks. While existing rules stipulate lenders can only contact borrowers three times a month, this has been dropped in favour of “proportionate” contact and lenders will be allowed to pay an unsolicited visit to a borrower’s home for the first time.
Once implemented, the Code will require borrowers to enter the MARP process. They will be assessed by the lender and will either be offered a new arrangement, such as interest only repayments, or will be told their mortgage is unsustainable. They may then appeal the decision in an internal process or accept it. Once any appeal is complete and there is no arrangement, they will be deemed to have exited the MARP process. They will then be given just two months before legal action can be commenced. The entire process from first default to legal action could take less than six months.
The introduction of the Code will have a knock on effect on personal insolvency. The Personal Insolvency Act 2012 (the “Act”) was passed into law on 26 December 2012; however, its provisions have yet to be fully implemented by the newly created body, the Insolvency Service of Ireland which has been established to oversee three new debt settlement mechanisms, namely, (1) Debt Relief Notices (“DRN”), (2) Debt Settlement Arrangements (“DSA”) and (3) Personal Insolvency Arrangements (“PIA”).
A progressive step has seen the Government nominate six country registrars as new specialist judges of the Circuit Court who will be responsible for deciding personal insolvency cases as the new scheme is rolled out in the coming months. These judges will be responsible for considering insolvency applications and have been appointed for the specific role in other to ensure a speedy adjudication process. The six nominated country registrars are: Mary Enright, Verona Lambe, William Lyster, Patrick Meghan, Mary O’Malley and Susan Ryan.
This step appears to indicate that the provisions of the Act will be up and running shortly, which will lead to an increase in creditors applying for bankruptcy and non judicial settlement arrangements.
There are now almost 144,000 mortgages in arrears, according to recent figures released by the Central Bank. The Government simply has to address this issue and the provisions discussed above are a definitive step in the right direction.
One thing is certain; the economy will only recover when our banks can concentrate on lending as opposed to recovery. The increased threat of litigation will force non cooperative borrowers to engage constructively with banks or alternatively encourage borrowers to avail of bankruptcy or non judicial settlement arrangements under the Act.
There is no doubt that difficult times are ahead but unfortunately they are required in order for our economy to recover and grow again.
Paul Brady, Solicitor