# Vulture Funds may have problems enforcing their securities against distressed borrowers!



## Asphyxia (20 Jul 2015)

In recent times Ireland has seen the emergence of so called vulture funds. These funds, on the invitation of the Irish Government, have been busy buying up the distressed assets of Irish banks and other banks that are leaving the Irish market place at substantial discounts. Names like Cerberus, Tanager, Havbell, _ content deleted - not a vulture fund_have appeared in headlines in the business and financial columns of our daily newspapers. These funds have different strategic goals than the banks that originally managed the loans.

Now lets us look at the Code of Conduct of Mortgage Arrears ( CCMA ). This code was issued by the Central bank of Ireland under section 117 of the Central bank Act 1989. The code applies to the mortgage loan(s) which are secured by the borrowers primary residence. So, for example, you had a couple of investment properties that were secured by an "all sums mortgage charge" against your principal private residence, then you have the protections of the code. Lets consider the ordinary "Joe" who has one mortgage, that being his primary residence. He, like many others , has got into significant arrears due to a change of circumstances during the downturn. He receives a letter from his bank stating that his loan has been sold to a third party who will be in contact with him. Enter the vulture fund.

The vulture fund as previously mentioned, has different strategic goals than the Bank that the borrower had a relationship with. These vulture funds want a quick return on investment. So they enter into correspondence with the borrower. The borrower, amazingly, cannot come to a debt resolution with the vulture fund that the vulture fund deems to be sustainable. This plays perfectly into the hands of the vulture fund whom immediately seeks to enforce their security over their asset, namely the borrowers home. You see, the vulture fund strategy is to purchase a loan book tranche at a discount, enforce its security against non performing loans either with consent of the mortgagor or by legal means. Then sell the asset and realise a profit. That is it. That is their business model.

Now, the problem for vulture funds: vulture funds are not regulated by the Central bank of Ireland, that means that borrowers do not have redress to the Code of Conduct of Mortgage Arrears ( CCMA ) or indeed the Mortgage Arrears Resolution Process ( MARP ). The borrower has no redress to the Financial Services Ombudsman's Office. This reduction in the guarantees for a borrower, if challenged in court, could be deemed to be unfair. If that be the case, the Irish state could be liable for any losses suffered by the borrower due to the sale of his loan to the vulture fund, as the Irish State did not protect the consumer rights of the borrower. The Government , on such advice, has recently passed the Consumer Protection ( Regulation of Credit servicing firms) bill 2015 and is awaiting the signature of the Irish President to become law.

Vulture funds that have instigated legal proceeding against borrowers in arrears could run into some strong headwinds in the courts, as, at the time they instigated the proceeding, they were not regulated and as such did not comply with the CCMA or the MARP processes. This will probably be deemed by the Courts to be unfair on the consumer ( borrower ). Indeed, even regulated Bank's, that are subject to these codes, when seeking to repossess primary residences encounter great difficulties due to non compliance with these codes:-

In Stepstone Bank v. Fitzell 2012 IEHC 142 Laffoy J. refused to make an order for possession of the defendants' primary residence because the relevant code was not complied with by the plaintiff bank. This was an application under s. 62(7) of the Registration of Title Act 1964 which expressly imports a discretion into the court power to grant possession. That sub section provides as follows:
"When repayment of the principal money secured by the instrument of charge has become due, the registered owner of the charge or his personal representative may apply to the court in a summary manner for possession of the land or any part of the land, and on the application the court may, if it so thinks proper, order possession of the land or the said part thereof to be delivered to the applicant, and the applicant, upon obtaining possession of the land or the said part thereof, shall be deemed to be a mortgagee in possession.
Laffoy J. said the following:

"I find it impossible to agree with the proposition that, in proceedings for possession of a primary residence by way of enforcement of a mortgage or charge to which the Current Code applies ... the plaintiff does not have to demonstrate to the Court compliance with the current Code... surely a court which is being asked to make an order which will, in all probability, result in a person being evicted from his or her home, is entitled to know that the requirement in provision 47, which has been imposed pursuant to statutory authority, is complied with. " .

Hogan J. in Irish Life and Permanent Plc v. Duff [2013] IEHC 43 also considered the question of the effect of Central Bank codes on contractual obligations and rights. He too refused to grant an order for possession of a primary residence because the bank did not comply, or at least comply fully, with the requirements of the code prior to instituting proceedings for possession. Hogan J expressly said he was refusing to make the order for possession in the exercise of his discretion which he accepted arose from the authorities in the case of unregistered lands, notwithstanding that pre-2009 mortgages of freehold unregistered lands were made by assurance of the legal title. A court order for possession is required for all post December 2009 mortgages by s. 97 of the Land and Conveyancing Law Reform Act 2009.

In reality, it will only be legally prudent for vulture funds to seek enforcement of their respective securities from borrowers 12 months after the Consumer Protection ( Regulating of Credit  Servicing Firms) Act 2015 comes into effect. To do otherwise would leave the funds open to legal challenge which, in the circumstances, will in all probability be successful and most likely lead to a costly legal bills for the respective funds.


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## Asphyxia (21 Jul 2015)

Press release from the Department of Finance:-
*

Consumer Protection (Regulation of Credit Servicing Firms) Act 2015*


13.07.15
*Consumer Protection (Regulation of Credit Servicing Firms) Act 2015*

Borrowers whose loans are sold to unregulated entities will now be protected by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 which has just been signed by the President.

The purpose of the Act is to ensure that consumers retain the protections they had prior to the sale of their loan.  Although many purchasers of loan books had already agreed to voluntarily apply the Central Bank codes when managing loan books, voluntary compliance is not enforceable.  As a result, the Government committed to ensuring these protections would be made available for all consumers whose loans have been sold.

Minister Noonan stated: ‘This legislation was a priority issue for the Government. The purpose of this legislation is to protect consumers whose loans are sold by regulated financial service providers to unregulated firms.

This Act will require entities dealing with the consumer to be authorised by the Central Bank and subject to its Codes of Conduct including the Code of Conduct on Mortgage Arrears, the Consumer Protection Code and the Code of Conduct for Business Lending to Small and Medium Enterprises.

Borrowers will also have access to the Financial Services Ombudsman.

I welcome the broad support received in both Houses of the Oireachtas for this legislation and I am pleased that this legislation has been passed and that all borrowers will now have the same protections, whether their loan is sold or not.’

Ends

13 July, 2015


So, for any consumer currently before the courts in a repossession action by a vulture fund, just state on affidavit that because you had no recourse to the CCMA or the FSO about how the fund dealt with your particular case, your consumer rights have been violated. That the Vulture fund offered you no appeal option, that the actual transfer of your mortgage loan to the fund was breach of the EC ( Unfair Terms in Contract Regulations ) 1995., as, at that time of the transfer your guarantees under the mortgage contract where diminished. Indeed the Act directs that vulture funds, in the interim, must comply with the Act immediately. There are many more valid legal arguments that can be made by consumers in this situation. I would invite feedback from consumers in this situation.


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## Redone (21 Jul 2015)

My loan was sold to Pepper, and they seem to be very much in it for the long haul. I was able to offer them 80% of the market value of our home, which would have given them a significant profit on their investment and they declined. 

This process took several months and involved paying for two independent property valuations.

But, I didn't know they are now being regulated. That's good news.


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## Asphyxia (22 Jul 2015)

Redone,

Firstly, from whom did pepper buy your loan?
Secondly, seeing that you were immediately able to offer them 80% of the market value of your home I doubt you were in arrears with them. The credit risk department of pepper have probably deemed you to be a good bet ( low risk ) and will seek full value on the original loan agreement. But at least pepper is now somewhat regulated.


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## Descart (12 Aug 2015)

Is there any posters on AAM currently been pursued by these vulture funds through the courts ?


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## Stephen Pike (14 Aug 2015)

I have been asked to provided indemnity letters noting the Interest of *Havbell Limited*. I am reluctant to provide same as getting a claim cheque lodged could prove difficult. Do they have a right to request this and will the insurance company agree given they are not regulated by the CB?


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## Descart (14 Aug 2015)

Stephen,

Firstly, did Havbell Ltd purchase your commercial or your residential mortgage from the bank.


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## Stephen Pike (15 Dec 2015)

It was for both residential (personal home & RIPs) & commercial


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## Stephen Pike (15 Dec 2015)

Descart said:


> Stephen,
> 
> Firstly, did Havbell Ltd purchase your commercial or your residential mortgage from the bank.



It was for both residential (personal home & RIPs) & commercial


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## Debtfree (17 Apr 2017)

Are Cabot financial a vulture fund or a credit servicing firm?


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## Gerry Canning (18 Apr 2017)

Cabot , are as you say, a credit servicing firm , it means they do the collection type grunt work for banks and credit card companies etc.
Cabot , also buy {bad} debt from Banks and credit card companies etc. They take a punt that they can squeeze more from the defaulter than the original owner of the debt can achieve.

I wouldn,t class them as a {vulture fund}


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## Debtfree (18 Apr 2017)

Thanks for your reply. I was just checking my understanding was correct so thanks for clarifying


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