What happens when a lender makes you sell your home

We don’t know the level of “bank encouraged” sales because they are shrouded in secrecy. But what happens when the bank tells you that you must sell your home?

‘WE WOULDN’T necessarily know if the bank is driving a sale,” says Michael Grehan, managing director of Sherry FitzGerald, “or know the debt level on the house or if the vendor is in deep negative equity.”

A “bank-encouraged” sale is one where the bank more or less tells a borrower to put their property on the market but stays in the background while the owner acts as caretaker, deals with the estate agent and gets the property ready for viewings, all the while pretending that everything is fine.

“There’s a certain amount of acting involved which must be very difficult for people,” says Frank Conway of moneycoach.ie

“The bank will probably have told them they will get a better price if no one else knows. Once it becomes known that it is distressed, people who target those kind of properties, often called hawks, can use it as an angle to negotiate. As with any sale it is important to keep cards close to chest.

“The banks prefer to keep the borrower in situ to handle the sale of the house because bank-forced sales can get messy. The individual is less likely to maintain the property, and this could lead to structural damage, or neglect which decreases the value.”

However it comes about, having property taken away by the banks can be fraught with emotion. In a recent court case, a property owner was jailed for two weeks after the High Court found he breached orders not to interfere with a receiver appointed over three of his premises.

But, says Darren Chambers of Lisney, “you rarely get the rotten chicken behind the sofa, or people barricading themselves in the bedroom.”

Some vendors take a more subtle approach, only pretending to go along with the bank’s wishes. Few are as upfront as the man who came into one agent’s sales office and said, “The bank is making me sell, stick a sign up in front of number 65 will you.”

Ed Carey, residential chief of the Society of Chartered Surveyors Ireland (SCSI), says estate agents often have to look for clues that they have a reluctant vendor on their hands.

“You might get a certain vibe from them – they may be digging their heels in and asking too high a price or it might be the condition they leave property in for viewings.”

He says part of the problem is that the vendor is left in limbo as to what is going to happen to the remainder of the loan once the house is sold.

“It’s a grey area and they don’t know if they are going to have to pay it off through a personal loan, or if some or all of it will be written off by the bank. There needs to be a structure in place.”

Frank Conway says this situation tends to arise in extreme cases where a borrower, for whatever reason, is paying nothing to the bank and is trying to stall the sale. “They might think we may as well hold out, as long as we are getting free accommodation.”

Ed Carey believes the more information an estate agent has about their client’s circumstances the better.

“We are more experienced than the vendor, they are better off laying their cards on the table. They might say we have a vested interest; well of course we have – to do our best for the vendor.

“We know how the different banks deal with negative equity and sometimes banks have unrealistic expectations and we can tell if it’s a non-starter.”

Bank-dictated sales and sales by receiver are quite different: a property receiver generally only enters the frame if a borrower refuses to co-operate with the bank. A receiver is generally appointed to deal with sales of a substantial investment or commercial property and new homes developments, where the builder has gone into receivership.

Lisney managing director Peter Stapleton is a receiver, and says such properties, by their nature, come with complications. Once a receiver is appointed, the borrower has to cede all control and it is up to the receiver to decide whether to rent or sell the property.

“Sometimes the borrower is reasonably happy for a receiver to be appointed, because it takes away some of the responsibility. Our primary duty is to the lender but there’s also a duty of care to the borrower. We have to make sure that what we’re doing is the best course of action and assess the market.

“There are going to be a lot more receiver sales, but they probably haven’t been as active as anticipated, because of the legal issues surrounding them. It’s not a business for amateurs, the downside is the risk of problems down the line, having to demonstrate you have carried out all the necessary work.”

Family homes get protection under MARP (Mortgage Protection Resolution Process), but the protection doesn’t last forever if borrowers cease making payments. There are currently 55,763 people in arrears of 90 days or more according to the Central Bank.

Eugene McDarby, the chief executive of debt management company Money Village, says the banks are inconsistent in the way they deal with debt. There is no formal debt writedown structure in this country.

“When a person falls into big debt, there’s usually a catalyst, a loss of business, separation or divorce, and there’s normally not just one debt but multiple debts, such as business, credit card, credit union,” he says. “People often pay the person who shouts loudest.

There should be more education on how to prioritise debt to stop arrears escalating at an exponential rate. The trick is to pay the mortgage first ; everything else is secondary. A roof over your head is number one.”

'I couldn't talk to anyone'

FIFTY-ONE-YEAR-OLD Jean* is awaiting a decision by her bank in December on whether it is going ahead with a repossession order on her family home.

Now €55,000 in arrears, Jean first ran into difficulty when her catering business lost 40 per cent of its business between August 2008 and 2009 and she tried to subsidise the shortfall with her savings.

“When your savings are gone, there’s nothing you can do,” she says. Her instinct was to pay her business creditors first, causing her to fall behind with her mortgage and credit card repayments. “I felt I’d lose the company if I didn’t pay my creditors and I thought if I lost the business, I’d lose everything. A lot of people don’t understand that.”

By the end of 2009, she says, the situation had become very serious, “but there was no support out there for me, even though I had created jobs– at the height of the business we had 23 people working for us”. Jean’s husband lost his job after 23 years in the building industry and they subsequently separated as a result of their money worries: “He is not the same man and to this day he can’t admit he’s suffering.”

Her reaction was to isolate herself. “I couldn’t talk to anyone, I suppose I felt shame. I don’t like owing money.” Her debt was compounded when the tenants moved out of two investment properties she and her husband had bought during the boom to fund their retirement. One, a holiday home in Portugal bought six years ago, is now on the market and if it sells, she will still be left with a debt of around €300,000. The mortgage on the Dublin apartment is in arrears to the tune of €7,000.

She found the Irish-owned bank who is the lender on her family home unapproachable. “They were only interested in hearing what payment I could make this month.” Other creditors were calling her two or three times a week. She says her bank moved to repossess the house when she didn’t stick to a repayment arrangement: “They felt I was unreliable.”

After consulting a debt management agency she learned how to prioritise her debt, paying the mortgage on the family home first and paying what she could off other unsecured debt. “I never thought you could pay a lesser amount than was being asked for or that interest could be frozen,” she says. She got a reprieve last time she appeared in court when she pledged to pay €400 a week, around half the monthly repayment owed to the bank.

Jean continues to run the business with one other person and works seven days a week to support her two children and chip away at her debt.

*not her real name