Ireland’s major lenders have stated that they are pursuing shortfalls on mortgage debt following the sale of homes by debtors or banks. By law the banks have six years in which to issue debt recovery proceedings.
However, in a large number of cases “no efforts have been made to recover monies owed”, says Ryan Stewart, director at insolvency practice, Stewart Brown Limited.
Mr Stewart says the inactivity by the banks in pursuing such debt has the effect of “lulling customers into a false sense of security” and influencing their decisions against declaring bankruptcy or engaging in the new insolvency process.
He accused the banks of “stalling” until the customers manage to get their finances in order.
“It seems the banks are being very clever in that they are not initially pursuing shortfalls on mortgage debt from customers. This is a common theme in a number of the cases that I have come across and is questionable behaviour to say the least,” he says.
Mr Stewart adds: “Customers must remember that banks are permitted by law to recover such debt for up to six years. While I am in no way encouraging banks to pursue customers – the write-off of debt is necessary to boost the economy and debt forgiveness is a step in the right direction – banks are not clearly showing their intentions to distressed borrowers.
These are customers who have sacrificed their properties whether through repossession, voluntary surrender or – in the case of investment property – by the appointment of receivers.
“Many debtors feel that the surrender of the property was enough to have the bank conclude their business with them despite an outstanding shortfall existing. Silence from the banks regarding shortfalls from already disposed of properties and their failure to initiate proceedings early on would suggest that they are stalling. The banks’ inaction is giving the impression that they are writing off the debt shortfalls by simply not pursuing the debts further.”
“This kind of tactic appears to be designed to dupe customers into believing they need not entertain the difficult decision of declaring bankruptcy in order to get on with their lives. The banks stating that they engage reasonably with customers on a ‘case-by-case’ basis means they can examine the situation today but re-engage in the future if a person’s circumstances improve. Should those with debts hanging over them manage to get back on their feet in the next few years they could very well find themselves facing legal action over something they thought was behind them.”
“Those who take the difficult decision to declare bankruptcy now will not have that threat hanging over them, as they will be debt free and discharged after only 12 months. People who take advantage of the fresh start that bankruptcy affords them are assured that their creditors can take no further action to recover the shortfalls that remain.
Lawyer Garry Clarke from bankruptcysolicitor.ie explains that although bankruptcy is a “last resort” an increasing number of people with mortgage debt shortfalls are now considering it.
“With the knowledge that their debts haven’t been cleared even after the sale of their homes, more and more people are looking at the bankruptcy option.
“The debt on mortgage shortfalls does not become statute barred for a period of six years whereas the new bankruptcy regime allows people to start afresh within just 12 months.
“Faced with those options, many see bankruptcy as the only definitive solution to get their lives back on track. People want the security of not suddenly finding themselves back in financial turmoil several years down the line,” adds the bankruptcy expert.
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