When repossession of your home is not enough for the bank

Q&A:

Q I CANNOT understand why, if a bank lends money to buy a house and the buyer defaults on the loan, the bank repossesses the house, and the buyer still owes the bank the balance between the loan and the money the bank will get for selling the property (with negative equity).

If it thought the house was worth as much as the loan and the house was collateral against the loan, why is it not enough for it to take the property, as surely this was the “ agreement” in the first place and the buyer (or borrower) is free of its obligations to the lender once it has repossessed the property?

Or have I got it completely wrong and the repossession wipes out the outstanding loan?

Ms G.M., e-mail

AFor people who find themselves in this unfortunate position, it must seem like the final slight to discover that not only might they lose their home, but they could still find themselves liable for borrowings on a property they no longer possess.

However, under Irish law this is indeed the case.

The Code of Conduct on Mortgage Arrears that was produced last February by the Financial Regulator makes clear that the lender cannot run to the courts for possession as soon as a problem occurs.

It sets down an extensive process that must be followed by the lender before resorting to the courts.

However, if a lender ultimately succeeds in repossessing your home and then sells it for less than the amount outstanding on your mortgage, you are liable for that cost.

Worse still, you are liable also for any interest that accrues on those borrowings, for the legal costs of any proceedings, and even for costs involved in selling the property.

In reference to collateral, the bank is taking a charge on your home as security when you take out the mortgage but that does not obviate the contract law involved in the mortgage transaction. It is simply a measure of security.

In the US they sell a form of protection against repossession called mortgage default cover.

This is essentially a form of insurance that protects the borrower in precisely the scenario you outline and, in a market where far higher-risk customers were receiving mortgages – at least until recently – it made a lot of sense.

No equivalent policy exists in Ireland, according to the Professional Insurance Brokers Association and the Irish Insurance Federation, which represent brokers in this State.

What we do have are mortgage protection policies and payment protection policies. The former pays off the mortgage if the borrower – or one of them – dies; the second covers monthly mortgage payments for a certain period if you are unable to work through illness or redundancy – provided, of course, that your break in payments complies with all the associated small print.

Neither, however, covers mortgage default and/or repossession of your home.

Ulster Visa Debit card

Q I have just read your column in The Irish Timesregarding Visa Debit cards. I received such a card from Ulster Bank in September and shortly afterwards went to my local post office to pay a phone bill and ESB bill. I handed the teller the card and he said he didn’t think the machine would accept it and, sure enough, it didn’t.

I said to the teller: “Why wont it accept the card? It’s a Laser card.” And his reply was: “It’s not Laser enough.”

Ms A.H., Mayo

AThere has been a string of queries regarding the Visa Debt cards that Ulster Bank is phasing in to replace the Laser card that has, until now, been more prevalent in Ireland. The card had previously been issued in Ireland by Halifax although none of the other banks has taken this route yet.

To be fair, it does appear as if the card will prove more useful, especially to people travelling abroad, than the Laser card – particularly for those travelling outside the euro zone. However, it is also true that its introduction has been plagued by hitches. The bank argues that these are largely out of its control. I disagree.

In particular, Ulster Bank conceded only this week that, until now, it had not overcome a problem on securing cash back at Dunnes Stores. On several occasions recently, the bank assured us that all such issues had been resolved and that all stores now took the card.

We raised the issue of supermarkets – specifically Lidl. They did concede there had been a problem there but they had sent teams in and this was now solved. At no point did they concede that the customers at the second-largest supermarket chain in the State could not avail of one of the basic functions of the debit card – getting cash back at the point of purchase rather than facing additional bank transaction charges.

I am now assured – though hardly reassured following the constant to and fro – that Dunnes Stores is, from earlier this week, in a position to offer cash back on Ulster Bank Visa Debit cards.

As for An Post, Ulster Bank insists there is absolutely no problem now – whatever might have been the case back in September.

The bank would argue that many of the problems its customers have encountered with Visa Debit have been down to third parties – presumably the card supplier and/or the retailers. However, I do not think it is unreasonable for Ulster Bank’s customers to expect that the bank would ensure it had undertaken extensive testing in advance of replacing a system that has worked perfectly for years and with which its customers are familiar. This, to my mind, would certainly include ensuring that all the major supermarkets and multiples in the jurisdiction accepted the card and could provide the full range of services on it.

I also do not believe it is acceptable that Ulster Bank should now be compiling its third guidance booklet – or “idiot’s guide” in my parlance – after finding out from customer experience that its first two attempts served only to confuse in key areas, such as the fees that would or would not apply to the use of the card in different parts of the world.

I am aware that the bank’s own briefing of staff on the issue is ongoing. It strikes me that frontline staff in branches and on customer service lines should be fully au fait with every aspect of such a scheme before it is introduced, not several months later.

At a time when banks are hardly in a position to presume on their credibility, I should hope that other financial institutions seeking to introduce the Visa Debit card will learn from the avoidable upset that occurred with Ulster Bank. I would also hope that Ulster Bank itself learns from its mistakes in any future significant changes it introduces. Customers deserve better.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2, or by e-mail to dcoyle@irishtimes.com.

This column is a reader service and is not intended to replace professional advice