A High Court ruling that will allow a 54-year-old woman pay a mortgage until she is 90 could help an estimated 20,000 people who are unable to pay Celtic Tiger-era debts.
Mr Justice Mark Sanfey signed off on a personal insolvency arrangement – a form of financial rescue for heavily indebted borrowers – that will allow Co Tipperary shop assistant Esther Kirwan remain in her home paying reduced mortgage payments for 35 years.
The arrangement had the backing of Ms Kirwan’s creditors, including Start Mortgage that owns the debt on her home. The deal was initially rejected by the Circuit Court on the basis that the woman could still be insolvent at 90 and facing the sale of her home to clear her debts.
Ms Kirwan’s financial adviser appealed it to the High Court where its ruling could now help many thousands of people in their late 50s, 60s and 70s who have family home mortgages in long-term arrears and whose finances could not, until now, be resolved in this way.
The ruling will allow others to seek similar deals that will allow them to remain in family homes long term while resolving heavy debts being shouldered since the economic crash.
Sources involved in the test case described the ruling as “transformative” and “massively important” as deals such as this could not be agreed informally outside of court-approved debt deals.
Mitchell O’Brien, the Co Waterford-based personal insolvency practitioner who devised the arrangement, described the ruling as a “wake-up call” to banks and other loan owners.
He conservatively estimated that between 15,000 and 20,000 people with long-term mortgage arrears could benefit from similar deals without having to go to court.
“A solution that has been identified to these long-term arrears cases that the Central Bank and the organisations it regulates haven’t been able to find solutions to themselves,” he said.
The ruling would give others an opportunity to take contested cases out of the legal system and deliver “workable solutions” in line with Government policy to help people in debt, he said.
About 41 per cent of all debt-restructuring applications to the State's insolvency service are made by people aged over 55. More than a fifth of family home mortgages in arrears are held by Start Mortgages, the lender which worked closely with Ms Kirwan's financial adviser on this deal.
Ms Kirwan had equity of €61,000 in her home but not enough to be able trade down as she would be unable to borrow a new mortgage from another bank, the court was told in a case argued by barrister Keith Farry.
Her equity meant that she was not eligible for mortgage to rent or social housing and the mortgage payment under the proposal was less than social housing rent, even if she was eligible.
Mr Justice Sanfey described the solution as “an exemplary illustration” of how the insolvency system should work, while recognising the unusual long-term nature of the proposal.
“Clearly there is an air of unreality to predicting what will happen in 35 years’ time,” he said.
Ms Kirwan’s financial adviser told the court that just one in 1,000 women in Co Tipperary live to the age of 90 and that the lender would get the sale proceeds if she died before reaching 90.