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Potential landmark mortgage arrears case struck out

Debt-for-equity solution to personal insolvency situation would have set precedent

In January, Trim Circuit Court judge Mary O’Malley Costello approved a personal insolvency arrangement writing down a man’s mortgage from almost €140,000 to €18,500.

A High Court case that could have set a landmark ruling to keep distressed borrowers in their homes by ceding part-ownership to their lenders was settled this week.

Mr Justice Denis McDonald heard on Monday that the case of a Co Meath widower had been resolved, removing a possible test case that could have created a new kind of solution in personal insolvency cases.

In January, Trim Circuit Court judge Mary O’Malley Costello approved a personal insolvency arrangement writing down the man’s mortgage from almost €140,000 to €18,500.

Under the arrangement, the man would pay his lender Start Mortgages €332 a month in 60 instalments and be able to remain in his home for the rest of his life without the threat of being forced to sell.

In return, the lender would take a 85 per cent ownership stake in the property to be sold at a later date when the man dies.

Start Mortgages objected to the arrangement in the case, appealing the lower court ruling to the High Court where it could have set a precedent but it was struck out on Monday.

The settlement was reached after Start raised a technical objection based on a separate ruling by the judge in February where a debtor loses the right to appeal if one creditor does not vote for an arrangement.


‘Frustrating technicality’

Start has agreed to give the widower eight weeks to negotiate an alternative agreement.

Tara Cheevers, the Trim-based personal insolvency practitioner who devised the arrangement, said that it was “very frustrating that a technicality has knocked over this landmark ruling by the Circuit Court”.

“Unfortunately, the creditors are just resisting debt for equity. They will just not entertain it,” she said.

“Until we get a High Court deciding on a case, we cannot go anywhere. There are loads of cases waiting in the system. If the court had ruled in favour of us, it would have opened the floodgates.”

Ms Cheevers said that the debt-for-equity solution would typically suit older people in their late 50s or early 60s on low-income or social welfare payments, but lenders are strongly resistant to the idea.

“They don’t want shares in properties that they have to have in their books. Vulture funds just want in and out. They don’t want to be waiting for someone to die to get their house and their money,” she said.

‘Innovative’ work

Other potential debt-for-equity test cases could be heard by the High Court this summer or in the autumn. The solution is seen as an alternative to the mortgage-to-rent scheme, which comes at a heavy underwriting cost to the State.

Minister for Justice Charlie Flanagan said at a personal insolvency conference earlier this month that he commended practitioners for the “innovative” work they were doing in long-term arrears cases and the more difficult cases, and specifically mentioned the debt-for-equity solution.

The Insolvency Service of Ireland said it had asked Mr Flanagan to consider an amendment to the 2012 personal insolvency Act to address the technical issue arising in cases where only one creditor votes and votes against an arrangement, thereby blocking a debtor’s right to appeal.

The service said it had proposed amendments to close off loopholes that have been used by creditors to throw up technical objections in an attempt to block personal insolvency arrangements.

“The ISI continues to keep such matters under review on an ongoing basis,” said a spokeswoman.