Plenty of us have been worried about keeping up with mortgage payments – some of us have fallen behind on their home loan, and you probably know at least one person who has. But what happens when debts like this go wrong? Does the bailiff come with the first warning letter, or is there a legal process to go through first? What protections do consumers have? And what can someone faced with legal action to recover bad debts do to fix the problem?

 

Any watcher of the courts will tell you that lenders are increasingly turning to repossession when people can’t keep up with their home loans. On face, a fifth of all listed in the Chancery Division of the High Court for one week in November resulted in the granting of a Possession Order, which allows a lending institution to repossess a property from borrowers who had fallen behind on their payments.
One typical case involved Start Mortgages, who have made a significant number of applications for these possession orders, and have been successful in the majority of their cases. Mr. Justice Brian McGovern heard an application by Start Mortgages for repossession of a family home, housing four children and two adults. The family’s landscaping business had been badly hit by the downturn in the economy. Arrears of s18,500.00 had accumulated and were increasing at a rate of s1000.00 per month. The mother of the four children told the Court that she was in a position to discharge the arrears by selling 17 acres of land which adjoined the family home. The Possession Order was given in favour of Start Mortgages. However, the Judge granted a Stay of Execution of the Order, giving the family six months to “get back on their feet” before the repossession took place. Within this time the family must have paid back the arrears. Otherwise, Start Mortgages will be able to evict the family from the property.
The Dublin County Sheriff, John Fitzpatrick – whose mandate, amongst other things, is to enforce by eviction these Possession Orders – believes an enormous number of property owners are being pursued by financial institutions for arrears in mortgage payments. And it is increasing on a daily basis.

 

Most of the cases where a borrower defaults on a mortgage do not end up in court. Instead, people are surrendering their properties or being asked to do so by their lender. In the case of these ‘voluntary’ handovers, no court order is needed, because the lender is in their rights to foreclose on a home under the arrangement they made with their borrowers.
A mortgage agreement will set out what the lender is entitled to do when the borrower goes into arrears. Most people don’t know in detail what rights have been given to the bank on signing. Unfortunately, the rights assigned in mortgage agreements are weighed heavily in favour of the lender. If you’re unsure about what rights you have as a borrower under the agreement, you can request a copy of your mortgage deed from the solicitor who acted for you in buying the home and read it in full. Any questions the borrower may have should then be addressed to a solicitor.
In theory, there’s little or nothing to stop a lender from taking legal action as soon as a borrower begins to default on their mortgage. However, the one real option that a borrower has is in this area is an application for a Repossession Order. For many reasons, banks aren’t keen to use this nuclear option without first at least trying to reach a court-free settlement.
Most banks will contact a borrower by letter when a payment has been missed requesting the account to be brought up to date. If the situation continues and more payments are missed, expect the bank to send follow-on letters requesting borrowers contact them to discuss the non payment. It is at this point that the borrower should understand the issue must be addressed head-on.
Your best option is to respond to the letters and emails as soon as possible. Explain to the lender why you fell behind, and request an alternative arrangement be put in place for a period of time. The reality is that banks, even more than most people, do not relish the prospect of going to Court. It brings adverse publicity, and they know that a reputation for tough or bullying tactics prevent them from attracting new borrowers when the economic times stabilise. Also, it is a very time-consuming process, sometimes taking up to three years to get before the Court. All major lenders have signed up tothe Irish Bankers Federation Code on Mortgage Arrears, which aims to treat defaulting borrowers sympathetically.
Even in cold cash terms, it’s not currently in a lender’s interest to seek a repossession. Many property is now in negative equity, meaning that the value of the home is lower than the amount of money lent out to buy it. Even if a lending institute get a Possession Order, then, they’ll struggle to sell it and recoup all their money. All this means that the mainstream banks are open to reaching reasonable agreements with borrowers who are in difficulty. It can suit them too. So if you are in difficulty, your first step should be making contact with your lender, discussing the options that are available to prevent the situation getting out of hand.
In the current conditions, most reasonable lenders will be prepared to discuss
the following options where the mortgage is in difficulty.

If your lender is a sub-prime operator, you should be aware that your consumer rights are less secure than with a mainstream bank. Consumers dealing with sub-prime lenders such as Start Mortgages only benefit from the protections contained in the Consumer Credit Act of 1995, enacted back when ‘sub-prime’ was a term used more often to discuss beef than mortgages. Sub-prime lenders are not yet regulated by the Financial Regulator as they don’t take deposits. It’s long been acknowledged by both regulators and lawmakers that this loophole needs to be closed off, allowing these institutions to be properly regulated.
The Consumer Credit Act 1995 is soon to be overhauled by the Credit for Consumers Directive, which is more in line with the current credit products being offered to the public.