Master of the High Court on debt issues and forgiveness

There was quite a number of areas covered by Honohan last week on debt in the High Court. One was about the fact that a bank has written off a debt because it cannot be recovered as the borrower cannot afford it, yet the bank's lawyers take the debtor to court to secure a judgment and the only reason they do this is so that they have a piece of paper for revenue so that they can write down the debt for tax purposes. How does this work. Could revenue not instruct banks that they will accept written down debts without a court order to save the debtor the cruelty of the High Court procedures where more often than not people are intimidated and without legal representation and in despair.

Also if the debt is written off in the banks books, hasn't the tax payer paid the banks for this debt.

Perhaps the banks can only force discovery of the individuals assets via a court case.

Can debt be forgiven if the lenders have made provisions for it?

If the banks have written off their bad debts would it be possible to reduce the mortgages of those in negative equity to a realistic level. ie. If I borrowed 700k to purchase my semi and it is now worth 400k, could the banks write off say, 200k and reduce the mortgage to 500k which would give the mortgage holder some chance of eventually paying it off? I am reading "The ascent of money" by Niall Ferguson and the history of finance is littered with defaults and recoveries. I dont know enough about the results of defaults but it appears that throughout history, any country that burnt the bond holders suffered for the next 50 years at least. Is there a mechanism for avoiding social upheaval by easing the burden of those in negative equity while paying our bills to our lenders on a more lenient basis?

Is this guy the brother of the Governor of The Central Bank?

The Master of the High Court seems to think it is his place to recommend new legislation.

It strikes me that this position should be rotated or there should be more than one master. The same should apply to the official assignee in bankruptcy. One person should not hold a monopoly of such positions for years on end regardles of their performance. That is my recommendation for new laws.

Is the Chief Justice in charge of selecting the Master of the High Court? If so, the Chief Justice should take responsiblity for his performance.

Hi Woodsman

This is an interesting point and there has been much misinformed media commentary on it

For example, the Master of the High Court said that the law should be changed so that a bank would have to swear that it had not written off the debt.

To make the issue less emotive, consider an ordinary business, say a grocery wholesaler. It is owed €20,000 by a corner shop. The corner shop refuses to pay, but they have no valid basis for doing so. It will take the wholesaler two years in the courts to get a judgment against the shop and to enforce that judgment.

When the wholesaler is preparing their accounts for the year, they will make a provision against that debt. They might make a 100% provision or they might make a 50% provision. This means that their accounts are prepared on a prudential basis.

But they will still pursue the shop through the courts. When they get the money back, they will reverse the provision.

What Honohan said was that if a lender made a provision for a loan, they were writing it off, and so they should not pursue the borrower. It is shocking that someone in such a senior position can be so badly informed.

The Central Bank stress testing forced the banks to make huge provisions against their mortgages. As a result of this, the government has had to put in massive capital into the banks. But this capital is in case those mortgages are not recovered. The banks expect to recover most of them and the provisions will not be needed. In that scenario, the government's investment will be recovered as the banks will be valuable and will be sold off.

If the banks had to let the borrower off every loan that they had provided for, the banks would make no provisions.

I am not sure that I have explained this well? I might try to give better examples later.

Bronte asked

the bank's lawyers take the debtor to court to secure a judgment and the only reason they do this is so that they have a piece of paper for revenue so that they can write down the debt for tax purposes. How does this work?

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This is just rubbish from the Honohan.

The banks have such huge accumulated losses, that even if it were true, they would get no benefit from it.

70% of the cases taken to court over mortgages are where the borrower has surrendered the house or has simply abandoned it.

The vast majority of the other 30% are where the borrower is ignoring the lender's attempts to contact them.

Look at the discussions on askaboutmoney. People in trouble are being facilitated by the banks.

Hi Brendan

Surely there is some clever way to avoid the social unrest that could be the result of repossesions etc. Could those in negative equity sue the banks for acting irresponsibly in lending to them in the first place? After all a woman in America successfully sued, I think it was at a drive in movie, for not receiving a warning that the coffee they sold her was hot and could burn her. I know it wont solve our national financial problems but its just a thought.

Woodsman said:

Surely there is some clever way to avoid the social unrest that could be the result of repossesions etc. Could those in negative equity sue the banks for acting irresponsibly in lending to them in the first place?

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It's important to realise that if there is some real debt forgiven, someone must pay. And in most cases, it will be the taxpayer. There is a general view that there is some abstract bank somewhere which can dispense money to write off people's debts - there isn't.

If someone feels that they were mis-sold a mortgage, they could make a complaint to the Financial Services Ombudsman. I can't see how it could possibly succeed though.

Are you saying that Honohan doesn't know what he was talking about? Surely he's there at the coal face and understands perfectly well what is going on.

In relation to the banks pursing someone who cannot pay and the bank knows this why do they pursue them? Are there such cases?

I do agree that banks are facilitating people. But only because to do otherwise wouldn't currently make sense. But this is just a time bomb.

If Honohan is incorrect how come the national media or a lawyer has not disputed what he said? There seems to have been no analysis of his comments.

Banks pursue people because of the way the system is set up. Often it is easier for the banks to sell the property if they have a Court Judgement rather than just a voluntary surrender of the property. I think also it is in the borrowers interest to get the house formally reposessed. Wasn't there cases recently where borrowers explained to the judge that they needed a judgement against them to help them obtain social housing?
Honohan speaks a lot of sense but the problem isn't with the banks. It's with the legal system and is something our legislators have done nothing about despite various reports including a very good one from the Law Reform Commission.

Sorry, Honohan speaks no sense at all.

Last year, he said that the number of cases coming before him had increased dramatically. The Courts Service confirmed that they hadn't.

He predicted a tsunami or repossessions. This didn't happen and he claimed it was because the banks changed their practices as a result of what he said. Which is utter nonsense. The banks were always showing flexibility before his comments and before the Mortgage Arrears Code.

We have comparatively high arrears in Ireland and comparatively few court cases. Many times the banks have to issue proceedings simply to get the borrower to engage with him.

I am sure that Honohan has seen some few cases which should not have come to court. But he gave the impression that the banks were hounding people out of their homes and driving them to suicide which is simply not true.

Brendan Burgess said:

Sorry, Honohan speaks no sense at all.

Last year, he said that the number of cases coming before him had increased dramatically. The Courts Service confirmed that they hadn't.

He predicted a tsunami or repossessions. This didn't happen and he claimed it was because the banks changed their practices as a result of what he said. Which is utter nonsense. The banks were always showing flexibility before his comments and before the Mortgage Arrears Code.

We have comparatively high arrears in Ireland and comparatively few court cases. Many times the banks have to issue proceedings simply to get the borrower to engage with him.

I am sure that Honohan has seen some few cases which should not have come to court. But he gave the impression that the banks were hounding people out of their homes and driving them to suicide which is simply not true.

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Brendan, it is way too early to start saying that he is wrong with the repossessions. If you look at the code of conduct and also the fact that I have heard that it can take for up to two years for legal action to reach the High Court from when it starts, he could well be right about a build up of cases that have yet to hit the system. There is a very valid criticism of the code of conduct that banks signed up to is that it is not helping anyone including the borrower who continues to rack up debt and costs. It just delays the inevitable. Even a High Court Judge has said this.

While he may have used emotive language, he is right to point out the inadequacy of the legal system in dealing with people who are highly indebted. I just disagree with him putting the blame solely on the banks as I think the legal system and our legislators are as much to blame for the current mess.

Sunny

It would be better for around 10,000 borrowers with unsustainable mortgages to agree to the sale of their home or to have them repossessed.

Honohan got his numbers wrong.

But worst of all, he gave the impression of mortgage lenders hounding people out of their houses. This is simply not happening.Far more people want to surrender their homes than there are banks who want to repossess.

In relation to the banks pursing someone who cannot pay and the bank knows this why do they pursue them? Are there such cases?

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There are hundreds if not thousands of such cases. Go watch a district court some day and you will see people on SW being hounded for instalment orders.

Time said:

There are hundreds if not thousands of such cases. Go watch a district court some day and you will see people on SW being hounded for instalment orders.

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Will you see them on home loans?

I think you will see them on unsecured loans.

Brendan