# High Court ruling that a family can stay in their family home



## Jim Stafford (2 Nov 2017)

The High Court gave an important decision yesterday that demonstrated the power of PIA's in keeping people in their family homes.

See link below:

https://www.independent.ie/irish-ne...es-hope-to-hundreds-of-families-36282665.html

Anyone facing a re-possession order should consult with a Personal  Insolvency Practitioner to obtain advice on their options.

One thing I have learnt is that peoples' financial circumstances can gradually improve for the better, and that what might have been a hopeless case a few years ago can now be salvageable.

It is still possible to do a PIA even if a repossession order has already been granted, provided you have not actually left the home.

Jim Stafford


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## Brendan Burgess (2 Nov 2017)

Hi Jim 

I read that. What is new about the judgement? 

Brendan


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## TLO (2 Nov 2017)

Hi Brendan, it would appear that the High Court has found that writing off negative equity does not unfairly prejudice the lender.  

And according to the article, there are hundreds of cases currently adjourned in the Circuit Courts which were waiting for this guidance.


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## Sarenco (2 Nov 2017)

The Indo's report on the case really is very poor.

It's actually a very important precedent for any distressed borrower whose mortgage has been sold to a vulture fund.

Shoreline Residential, an affiliate of vulture fund Lone Star, had vetoed a PIA presented at a creditors' meeting and was seeking to repossess the couple's home. That action was stayed pending an application to the High Court to approve the insolvency arrangement over Shoreline's objections.

The proposed PIA involved a writedown of the outstanding mortgage debt to Shoreline from €323,626 to €190,000 and an extension of the term of the loan from 21 years to 27 years. It also involved fixing the interest rate for the entire outstanding term of the mortgage to 3.65%.

Shoreline objected to this.  It argued that the terms of the PIA were "unfairly prejudicial" and that they were a radical departure from the fixed rate mortgage loans available to borrowers on the Irish market. Shoreline argued that no lender would grant a 27 year fixed rate mortgage on those terms.

Shoreline also argued the PIA would result in a markedly worse outcome for it than if the couple had declared bankruptcy and Shoreline was allowed to sell the home (current value of around €190,000) in satisfaction of the debt.

Ms Justice Baker rejected these arguments. She said part of the aim of the Insolvency Act was to allow debtors to restructure their loans on sustainable terms but that the Act also explicitly stated that a PIA should, as far as was practical, keep a debtor in their principal private residence.

In relation to the interest rate proposed in the PIA she said Shoreline was an investment fund, not a bank, and the relevant factor was the return on its investment and not whether or not a lender would advance a mortgage on the terms sought in the PIA.

Furthermore, a proposed PIA is not itself unfairly prejudicial to a lender merely because a likely return on bankruptcy could be marginally better.

http://www.irishexaminer.com/breaki...n-house-after-high-court-decision-812333.html

In my opinion, the case shows that the Courts will bend over backwards to facilitate distressed borrowers if there is even a remote possibility of re-structuring a loan on a sustainable basis.


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## Jim Stafford (2 Nov 2017)

Brendan Burgess said:


> What is new about the judgement?




Sarenco's  summary is a useful one.

In some ways, there is not much "new" precedent in the judgment, as previous judgments have approved PIA's that extended mortgage terms and fixed interest rates.  What is new is that this is the first time the High Court has distinguished a fund from a bank when assessing if it is being unfairly prejudiced or not by the PIA.  In this case the fund submitted 2 affidavits arguing that fixing the interest rate at 3.65% for 27 years was prejudicial. The judgment stated that "_The objecting creditor is not a bank but an investment fund"_  and that it was more relevant to review the return that it was achieving, 3.65%, on a secured asset, as opposed to its cost of funding etc

Jim Stafford


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## Andy836 (2 Nov 2017)

How is forcing a 27 year fixed interest rate not prejudicial to the lender?
What other lender in the market is offering such a rate?


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## Sarenco (2 Nov 2017)

Andy836 said:


> What other lender in the market is offering such a rate?


I think you are missing one of the key points of the ruling. 

The fact that no lender in Ireland would originate a loan on that basis was considered irrelevant because the loan was held by an investment fund.

But there's no doubt about it - the judgment is extremely pro-borrower. 

It amazes me that some distressed borrowers are still wasting their time advancing "clever" technical arguments to stave off repossessions when these generous deals are available.


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## dereko1969 (2 Nov 2017)

But they're not a lender, they're an investment fund.


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## Andy836 (2 Nov 2017)

Sarenco said:


> I think you are missing one of the key points of the ruling.
> 
> The fact that no lender in Ireland would originate a loan on that basis was considered *irrelevant because the loan was held by an investment fund.*
> 
> ...



How is that a valid argument? 
Are you saying investment funds can raise 21 year money at 3.65%? 
Continuing that thinking, it would imply that the Court would not impose a 21 year fixed rate on a Bank as a Bank is what people perceive as a traditional "Lender". But that's just discrimination as they're both simply secured creditors, no more, no less.

I may be questioning the Judges decision, but it would appear from the article that Shoreline's counsel didn't make the case well (which is a pretty bloody simple case to make)


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## Sarenco (2 Nov 2017)

Andy836 said:


> How is that a valid argument?
> Are you saying investment funds can raise 21 year money at 3.65%?
> Continuing that thinking, it would imply that the Court would not impose a 21 year fixed rate on a Bank as a Bank is what people perceive as a traditional "Lender". But that's just discrimination as they're both simply secured creditors, no more, no less.
> 
> I may be questioning the Judges decision, but it would appear from the article that Shoreline's counsel didn't make the case well (which is a pretty bloody simple case to make)



It's not my argument Andy - it's the rationale expressed by the High Court judge in arriving at her judgment.

I would be very surprised if Lone Star didn't engage top class representation to argue their position in this case.  They certainly have the resources to do so. 

The simple reality is that the Courts (and the insolvency legislation for that matter) are extremely pro-borrower.


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## TLO (2 Nov 2017)

Sarenco said:


> It amazes me that some distressed borrowers are still wasting their time advancing "clever" technical arguments to stave off repossessions when these generous deals are available.



Plus one to this.  And Jim is also making a similar point, that PIAs can be used to keep families in their homes even if a repossession order has been granted.  And the case law is becoming more borrower friendly all the time.

The business model of the "investment funds" is to buy a consignment of distressed mortgages at a discount, obtain control of the security, and then sell it on the open market, hopefully at a profit.  The last thing they want is to be locked into a 27 year arrangement which is precisely what the judge sanctioned in this case.


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## Jim Stafford (2 Nov 2017)

You really need to read the full judgment to appreciate the issues, all  of which were very well ventilated and argued. See attachment below.

The bottom line was that a PIA produced a better outcome for creditors than a bankruptcy.

Jim Stafford


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## Andy836 (3 Nov 2017)

That is eye opening.

Even though they bought a floating rate loan, the judge decided it was better viewed as a bond. 
Repeated references by the judge to the fact they were collateralized by the property- irony escaping him that they were seeking to get that collateral yet he was refusing them it. 
Can that be appealed?


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## Sarenco (3 Nov 2017)

Yes, the decision could be appealed.

I don't disagree that the Court's characterisation and valuation of the loan looks very unconventional.


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