Borrowers ‘unable’ to get loans for repossessed property

Borrowers are unable to take out mortgages to purchase repossessed properties offered by banks because the contracts are so restrictive, the Law Society has said.

The society has written to the Irish Banking Federation to warn the organisation if the situation does not improve it will advise solicitors not to go act for purchasers of repossessed properties in cases where clients need mortgages.

Since the economic downturn, lenders have been repossessing the properties of homeowners and businesspeople who have fallen behind with their loans.

Properties including commercial and residential have been put up for sale, often at public auctions where buyers with either cash or pre-approved loans can bid.

Legislation recently passed in the Oireachtas repaired a flaw in the Land and Conveyancing Law Reform Act 2009, and is expected to lead to an increase in repossessions and in subsequent property sales.

Contract difficulties
But the Law Society has said there are difficulties with the contracts of many repossessed properties that make them incapable of being mortgaged.

In a letter to the federation, also sent to the Irish Mortgage Council, the society said some of the contracts its conveyancing committee has seen have been “restrictive in the extreme”.

They exclude the usual title warranties that a seller normally provides when a property is being purchased and they also exclude the usual planning warranty, provided to ensure any building work carried out on a property does not violate planning laws.

Lenders also refuse to reply to pre-contract enquiries and enquiries about title, the letter said.

“It seems to the committee that liquidators and receivers appointed by your members . . . are issuing blanket refusals to provide such information as is reasonably within their possession or procurement,” it said.

“The committee is of the view that all the same principles apply to liquidators, receivers and mortgagees in possession [the lenders] as apply to any other vendor.”

The letter also said federation members may not be aware that the restrictive contracts being issued on their behalf result "in some properties being rendered incapable of being mortgaged".

Property title
If the information normally provided about property title and planning is not provided, a solicitor must qualify any certificate of title given to the institution providing the loan.

“In the experience of committee members and solicitors who have contacted the committee, lending institutions refuse to accept such qualifications, making the purchase or remortgage of the property impossible,” the letter said.

It suggested that there should be some discussion between “debt recovery sections” of lenders and “mortgage departments” to see how the matter might be resolved.

“Your members cannot have this matter both ways,” the letter said.

A spokeswoman for the federation confirmed it had received the letter from the Law Society.

The federation’s legal and conveyancing committee were now reviewing it, she said.

“Upon consideration IBF plan to engage fully with the Law Society to assess the significance of the issues raised and to determine what, if anything, needs to be done to resolve the points identified in the letter.”