Bank refund on sale of homes with debt write-down ‘fair’
Provision allows banks to recoup any profit made by borrowers for up to 20 years
Michael McGrath: said he has concerns about the provision
A provision in new personal insolvency legislation to allow banks recoup any profit a borrower might make from the early sale of a debt-writedown home was “perfectly reasonable”, an advocacy group for struggling borrowers has said.
Responding to reports at the weekend that the provision had been added to the legislation with a late amendment and that it raised concerns about the new insolvency regime, Ross Maguire SC, one of the founders of New Beginning, said it had always been part of the legislation and was fair.
However, Fianna Fáil finance spokesman Deputy Michael McGrath has said he has concerns about the provision. And David Hall of the Irish Mortgage Holders Organisation, formerly of New Beginning, described it as “an unfair insurance policy for the banks”.
Under the Personal Insolvency Act 2012, a home owner in financial difficulties can seek to put in place a six-year personal insolvency arrangement to deal with his or her debts. As part of this arrangement, the bank may write down some of the borrower’s mortgage, reducing the amount owed. But if the borrower sells his or her home before 20 years are up or before the reduced mortgage is paid out in full, the bank can reclaim the profit made on the property.
Mr Maguire said the provision was introduced to avoid a situation where somebody gets a writedown from the banks and then sells a property and makes a big windfall.
“The idea of a personal insolvency arrangement when it comes to a family home is to keep people in their family homes on a sustainable basis,” he said. “It is not about enriching people at the expense of a bank, it is about fairness.”
He said the provision did not apply if the mortgage was paid off before the sale and it could be altered by the contract signed when the personal insolvency arrangement was put in place.
“It doesn’t necessarily have to form part of the insolvency arrangement,” he said.
He also said there was a provision in the Act which allowed for long-term leasing of the property. “I think any lawyer worth their salt could work out a situation of being able to circumvent the [recoupment] provision,” he said.
Mr Maguire said he believed the new insolvency service would provide a way through current difficulties. Lenders were afraid of the legislation and were happy for misinformation to be circulated, he claimed. This “latest episode of recent misinformation and misinterpretation” was unacceptable, and frightened the public. He advised struggling borrowers considering taking a personal insolvency arrangement to take advice from qualified persons only.
Irish Bank Federation spokesman Felix O’Regan also said there was nothing new about the provision and it was about “getting the balance right”. “This was always going to be about compromises,” he said.
Mr McGrath said he had been aware of the provision, but was critical of it. It meant people would not be getting the “fresh start” they had been promised after six years and the banks would maintain a hold over them for up to 20 years. This was unfair and could push more people into bankruptcy. He said he would raise the matter at the Oireachtas finance committee meeting next week.