# High Court rejects KBC's counter proposal to warehouse part of a mortgage as part of PIA



## Brendan Burgess (23 May 2017)

http://www.irishtimes.com/news/irel...-to-defer-part-of-couple-s-mortgage-1.3092528

This seems like a crazy decision by the High Court.  

KBC was proposing to warehouse a significant amount of money, but the court ordered that it be written off instead. 

"Ms Justice Baker said the bank’s proposal was unreasonable and unfair as the repayment of the inactive part of the mortgage did not rest on “any anticipated ability to pay in the future and is entirely on the hazard”.

While not ruling out warehousing arrangements in other formal debt deals, the judge said KBC’s proposal in this case was speculative in nature and based on assumptions and conjecture regarding the living conditions of the couple “far into the unknown future” when they will be in their 60s.

“While the counterproposal made by KBC may seem attractive and to some extent benevolent, it is capable of creating circumstances amounting to insolvency at the end of the mortgage term in approximately 23 years’ time,” she wrote in her judgment."

This is a shocking misunderstanding of insolvency.  If they can pay the active part of the mortgage, after 23 years they will own a valuable property which will be well in excess of the value of the warehoused mortgage so they will not be insolvent. 

Brendan


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## TLO (23 May 2017)

Brendan, I respectfully disagree.  It is impossible to predict the value of a property, and people's personal circumstances in 23 years time.  The Judge framed her decision within the context of insolvency legislation, which aims to keep people in the family home, and return them to solvency within a 5-6 year timeframe.  As an aside, good to see Anthony Joyce yet again rewriting the ways things work by representing debtors situations in the High Court and getting case law established.  Good job too by McCambridge Duffy (the PIP) and Keith Farry (the barrister).  And, of course, the couple themselves, who stuck with this and have achieved a resolution. 

Warehousing just "kicks the can down the road", a 23 year attempt in this case.


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## sellornot (23 May 2017)

I welcome this ruling it's time the courts stand up to the banks and try to keep people in their homes 

The IrishTimes article went on to say: 

The court ruling means it could prove more difficult for banks to exclude some mortgage debt from write-offs within the normal five-year term of a personal insolvency arrangement.

“It is the first case that has really started to deal with the warehousing issue, it is opening that door which will be more favourable to the debtor.”

*Ruling welcomed*
Personal insolvency practitioners (PIPS), who advise insolvent borrowers, welcomed the ruling for bringing clarity to whether banks can include split mortgages and warehousing deals in personal insolvency arrangements.

“PIPs don’t like warehousing because it doesn’t provide certainty. It leaves a chunk of debt hanging over someone like a sword of Damocles to be dealt with at a later date,” 

sellornot


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## Delboy (23 May 2017)

Is it within the Judge's remit to be concerned about people's circumstances 23 years from now?
I would have thought not.

Another nail in the coffin of banking competition in this country.


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## Sarenco (23 May 2017)

This looks like a perfectly sensible ruling to me.

The key point surely is that the repayment of the warehoused part of the mortgage did not rest on “any anticipated ability to pay in the future and is entirely on the hazard”.  So if the debtors had been public servants, for example, with an expectation of receiving a significant lump sum on retirement, a different conclusion might have been reached as there would have been an "anticipated ability to pay in the future".

It will be interesting to see what impact this ruling has on restructured mortgages generally.  Will it signal an end to existing "extend and pretend" warehousing arrangements? 

That would obviously mean that lenders would have to recognize losses in their accounts more rapidly, which is hardly good news for anybody hoping for lower lending rates any time soon.


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## Delboy (23 May 2017)

Pat Kenny about to discuss this on Newstalk....'a victory for mortgage holders' was how he described it in the intro!


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## Sarenco (23 May 2017)

It's worth bearing in mind that the debtors will be left with a €120,000 mortgage, on a property currently worth €105,000, following the write-down.

That looks like a sensible settlement to me - from the perspective of both parties.


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## lukas888 (23 May 2017)

Would it not be more equitable if the Judge inserted a look back clause say every 5 years.If the house appreciated in value to 150k then warehouse a portion of the gain.I appreciate this would be very difficult and cumbersome to implement but if this becomes the new solution a lot of debtors
 could be sitting on unfair windfalls in the future.From the perspective of all struggling mortgage holders this ruling has the potential to be very unfair.


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## Delboy (23 May 2017)

The Solicitor in this case just said on Newstalk that there is a potential clawback element to this that can last 20 years. He wasn't sure though whether it starts from the date of the mortgage commencement or the date of the settlement.
How/whether this gets implemented over the course of 20 years is a whole other debate


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## Jim Stafford (23 May 2017)

PIPs up and down the country have been awaiting the High Court's decision in this particular case for months, as it is the first time that the High Court has properly considered the vexed question of warehousing. There are a number of other cases in the pipeline with similar circumstances.

If the decision is not appealed, then it certainly opens up the door to thousands of householders who felt compelled to agree to "warehousing" deals in the past.

The critical point of the case is that the PIA legislation is primarily designed to keep people in their family homes.  With warehousing, their is simply no guarantee that the debtor could pay the mortgage at the end of the warehousing period etc.

As Sarenco suggests, the deal in this case is fair to both parties.

Jim Stafford


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## Delboy (23 May 2017)

Jim Stafford said:


> As Sarenco suggests, the deal in this case is fair to both parties.


I'm sure KBC might disagree with that


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## Sarenco (23 May 2017)

Delboy said:


> The Solicitor in this case just said on Newstalk that there is a potential clawback element to this that can last 20 years. He wasn't sure though whether it starts from the date of the mortgage commencement or the date of the settlement.



It's 20 years commencing on the date that the PIA comes into effect.

Bear in mind that the clawback is only relevant if the debtor sells the property at a profit within the 20 year period.


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## Sarenco (23 May 2017)

Delboy said:


> I'm sure KBC might disagree with that



Well KBC are in a considerably better position under the terms of this settlement then they would be if they had simply enforced their security.


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## cremeegg (23 May 2017)

Moral hazard.

I have a mortgage from 2006 for a similar amount. I have just spent 10 minutes full of begrugery and resentment wondering why these people have had most of their mortgage written off and how unfair that is on poor me, and why I haven't had half my mortgage written off as well.

But I am not big on self pity. So that 10 minutes is over. Low cunning is more my self image, I shall spend the next few days wondering how to go about actually getting a write off. Time to cancel that dd I think.


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## Brendan Burgess (23 May 2017)

So here are the figures:

KBC's proposal
Current mortgage €285k
KBC proposed to warehouse €135k
Active mortgage €150k


PIA proposal
Current mortgage €285
Write off €165k
Remaining mortgage €120k

Value of property €105k


There really is no reason to write down debt while the owner stays in the property.

This borrower can meet the repayments on €120k - Say €633 per month on €120k over 23 years.

It would be much more balanced  for the borrower to pay the €633 per month in interest.
Leave the mortgage at €285k - that would be €830 interest per month.
Write off the interest they can't afford.

Turn the mortgage into a non-recourse loan.
If the borrower pays the €633 per month and if they ever want to sell the house, the bank gets the proceeds up to €285k and any shortfall is written off.

In 23 years time at €633 per month, this guy will own a mortgage-free house. Where is the fairness in that?  

There is some clawback provision in the PIA legislation, but I am not sure how it works. 
https://www.askaboutmoney.com/threads/how-the-clawback-in-a-pia-works.180605/

Brendan


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## Redone (23 May 2017)

Brendan Burgess said:


> In 23 years time at €633 per month, this guy will own a mortgage-free house. Where is the fairness in that?



It's mad.

That PIA practitioner is going to be popular.


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## Delboy (23 May 2017)

'Fairness' means different things to different people these days


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## Sarenco (23 May 2017)

Delboy said:


> 'Fairness' means different things to different people these days



Well, I didn't actually use the word "fair" but I do think that it was a _sensible_ settlement from the perspective of both parties on the basis of the reported facts.

In a sense, all debt settlement arrangements are "unfair" to those borrowers that continue to meet their contracted obligations and, to Cremegg's point, inevitably introduce a degree of "moral hazard" to the market.

However, at some point we have to bring some element of finality to these problems – we can't simply continue with the "extend and pretend" fantasy for ever. 

If the debtors in this case had voluntarily surrendered the property (or forced KBC to obtain a possession order) and declared bankruptcy, KBC would have had a worse outcome and the State would have borne the costs of administering the bankruptcy.  That's not really in anybody's interest.


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## Tebbit (23 May 2017)

It seems really unfair to me  - the couple must be delighted but the people who pay and pay and pay never get a break.  Sometimes I think this country is just plain nuts.


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## Danny Boy (23 May 2017)

Does this ruling have any implications for  people on a split mortgage that haven't gone down the insolvency route? Will banks now be reviewing all split mortgages on their books?


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## Sarenco (23 May 2017)

Well, any borrower with a "split mortgage" should certainly consider consulting with a PIP - they could get tens of thousands of outstanding debt written off.


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