Q&A: What does judge’s stance on AIB mortgage debt transfer mean?

Has a judge cast doubt over the right of banks to force the repayment of billions of euro worth of mortgages?

Not really, though in a judgment delivered last year Ms Justice Marie Baker did find in favour of an argument made by debtor Nadine Thompson of Rathdown Park, Terenure, Dublin, arising from a old law called the Supreme Court of Judicature (Ireland) Act 1877.

The judge found that AIB didn't notify Thompson when it transferred her debt from AIB plc to a separate entity, AIB Mortgage Bank, in 2006, and it should have under the 1877 act.

The judge’s finding caused the bank concern as it didn’t want any view taking hold that there was an uncertainty over a massive 2006 transfer of loans totalling €17.8 billion to the new AIB entity. This had the potential to impact on the market in asset-covered securities, it said.

It was for this reason that former attorney general Paul Gallagher SC and debt finance expert Louis McEntagart SC were brought in to address the court on the issue. Gallagher spoke for the bank and McEntagart for the debtor. The judge will give a response in due course to the bank’s application that she clarify her reasoning in her judgment so that there is no uncertainty.

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Why is notification important?

Because otherwise you might go on making repayments to the person or entity you originally borrowed from, only to find out years down the line that the debt had been transferred, and you still owed the money to the new owner of the debt. That’s the principle involved, though in the current case it is unlikely that AIB Mortgage Bank would get very far going after someone who had been making payments to its parent, AIB.

Does the court’s finding on the notification issue have implications for other banks?

The failure to notify as per the 1877 act could well be an issue for most banks. In the mid-2000s a lot of banks transferred their mortgages to new legal entities so that those entities could borrow against the mortgages in the international markets. So the issue is the extent to which the banks notified their borrowers while doing so. Quite possibly others made the same mistake as that identified by Ms Justice Baker.

What about the vulture funds?

It seems when they were buying distressed loans from our banks they notifed the debtors affected. So no, they’re not affected.

Does Thompson have to pay her debt?

The judge found in favour of the bank, which was seeking judgment for €244,591. Thompson is appealing.

The judge ruled that the debt was due in equity, or in fairness, given that there was no dispute that the money was loaned by AIB, borrowed by Thompson, and not repaid.

Is the judge being asked to change her own judgment?

The judgment was delivered in July of last year. Then the bank asked the judge to hear its submissions that she should “amplify” her reasoning. McEntagart was brought in on the debtor’s side, but paid for by the bank, so that the arguments could be aired by the two senior barristers. McEntagart argued that the bank is trying to get the court to reverse its finding on the notification issue, and that the bank was asking the court to do something it didn’t have the power to do.

So what’s likely to happen?

It’s likely that, whatever happens, people who borrowed money that they haven’t repaid will still be expected to repay the money.