# How a Vulture Fund saved a Family Home



## Jim Stafford (15 May 2017)

Vulture funds do not generally receive good press. However, when it comes to doing deals, we prefer to deal with vulture funds as they have no moral hang ups about debt forgiveness, they act commercially and they give fast decisions.

I set out below an example of a deal that we recently agreed with a vulture fund, which illustrates their commerciality and decisiveness.

The core facts were that a debtor owed €443,000 to a bank and €8.3 million to the fund. Both debts were unsecured, meaning that the debtor was eligible to do a Debt Settlement Agreement ("DSA"). The debtor's only substantive asset was a 50% share in the unencumbered family home with a value of €900,000. The debtor had monthly income of €3,111 over and above his Reasonable Living Expenses. A key fact was that the bank was just about to obtain judgment in the High Court, and proceed to register a judgment mortgage against the debtor's interest in the family home. Whilst the fund had served legal demands on the debtor in respect of the debt of €8.3 million, it had not yet issued proceedings.

The debtor approached us for advice. When we heard that the bank were about to obtain judgement we called the vulture fund and made the following case;


If the bank registered their judgment of €443,000 on the debtor's interest in the family home, they would be no equity remaining for the vulture fund.
The debtor's spouse had limited savings of her own, but she was prepared to use up to €80,000 of those savings to try and do a deal.
Doing a deal now would save the fund substantial legal fees in obtaining judgment etc.
We said that if the vulture fund agreed to vote in favour of a DSA, that the DSA would pay a dividend of €54,500 to them.
Within 2 days the agents and solicitors for vulture fund evaluated the proposal and agreed to support it.

We then prepared a DSA. The key objective, given that the fund had committed to accepting a dividend of €54,500, in the DSA was to ensure that the bank was not "_unfairly prejudiced_" by the DSA. If the bank could demonstrate to the High Court that they were unfairly prejudiced, then the DSA would not be approved. We prepared a "Statement of Estimated Outcome" comparing the proposed DSA with the expected outcome in a bankruptcy. 

We calculated that the bank would receive €22,297 in a bankruptcy.  To ensure that they could not claim that they were unreasonably prejudiced by the DSA, we provided that the bank would receive €27,297 in the DSA.

We proceeded with the DSA.  The bank voted no against the proposal but the fund voted in favour.  As the DSA only needed a 65% vote to get it over the line, the fund's vote of 95% was overwhelming. The DSA was subsequently approved by the High Court. In summary, the bank received €27,297 and the fund received €54,500.

Obviously, what helped in this case was that we were presented with a _"_*perfect storm*" i.e. the pending registration of the judgment mortgage, which would have meant that there would be virtually no assets left for the vulture fund. Thus the vulture fund acted commercially and decisively, and obtained a dividend of €54,500.

If anybody is facing a registration of a judgment mortgage against their family homes, and if they have other creditors, they should immediately contact a Personal Insolvency Practitioner to determine what settlement options might be navigated. As can be seen from the above, a pending judgment from one creditor can actually create a "_perfect storm_" that would allow a PIP to navigate a very cost effective solution.

(The debtor provided his permission to share the above case.)

Jim Stafford


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## Brendan Burgess (15 May 2017)

Hi Jim - fair play to you and to your client. I would be delighted. 

But this guy is bankrupt. Surely he should have sold the family home for €900k and paid the €450k to his creditors? 

Then his wife could have bought a home with her €450k and her saving? 

It's not as if fair treatment of all parties would have left him homeless. 

Brendan


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## Jim Stafford (15 May 2017)

Brendan

He "was" bankrupt but is now solvent.

As I said in the posting, the pending registration of the judgment mortgage presented the "perfect storm".  If the vulture fund had not voted in favour of the DSA they would have had to incur substantial  legal cost obtaining judgment, only to find that their judgment would have been too late to be of any real value. At the end of the day, the bank received €5,000 more than they would have received in a bankruptcy, and the vulture fund received €54,500.

Jim Stafford


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## Andy836 (15 May 2017)

And people wonder why the funds get such huge discounts when they buy debt from Irish banks - $8.7mm in debt versus $0.5mm in assets. *facepalm*


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## Delboy (15 May 2017)

Am I right in this summary?

House value €900k (no mortgage against it) of which the Debtor owned 50%
Debtor owed €443k to the bank and €8.3m to the vulture fund.
Debtor (himself only, wife maybe had her own income etc) had roughly 5k month income (€3,111 above reasonable living expenses). Thats 5k after tax.
Spouse had 'limited savings of her own' but was prepared to offer up to €80k of that savings towards any settlement. I guess 'limited' means different things to different people!

As part of the agreement the Debtor paid:
€54k to the vulture fund
€27.3k to the bank
€8.69m was written off
The Debtor kept the €900k house in full with no charge against it.
And there was no charge against his future income of currently €5k per month net.

Have I that right before I pass any comment???


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## lukas888 (15 May 2017)

Fantastic outcome for the debtor Jim a brilliant achievement.But even if the bank had placed a judgement mortgage on the family home it would not have achieved anything as the wife was not party to the debt.We know from previous case law the courts would not allow the bank to progress
the judgement to a sale.The wife could then have saved herself a few euros offer the vulture fund 50k and let the bank whistle Dixie.


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## Jim Stafford (15 May 2017)

Delboy's summary is correct.

I have previously posted here on the _Muintir Skibbereen Credit Union _case: https://www.askaboutmoney.com/threa...-homes-have-little-value.199702/#post-1479839

In that case the Court did not conclude as to what decision it would make if the spouse had sufficient resources to buy another house. Accordingly, there was always a danger that the bank could have obtained a well charging order forcing the sale of the house.

Jim Stafford


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## lukas888 (15 May 2017)

I fully accept the possibility of the bank obtaining a well charging order but i feel it would be a long and expensive road for the bank with no
guarantee of success.


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## Delboy (15 May 2017)

A shocking decision. Not surprising as this is Ireland but shocking all the same to see the cold hard numbers.
A slap in the face to those who kept it country during the boom and didn't over-extend themselves. And a kick to the taxpayers/citizens of Ireland who take the overall hit on those writedowns unless in this instance it was all Ulster bank or some other UK guaranteed institution.

We are destined to repeat the mistakes of the past when there is so little personal responsibility and when the State always bears the brunt of the downsides.


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## Mrs Vimes (15 May 2017)

Delboy said:


> And a kick to the taxpayers/citizens of Ireland who take the overall hit on those writedowns unless in this instance it was all Ulster bank or some other UK guaranteed institution.



Jim is quite clear that it was a vulture fund that got burned, the bank in the case did better than they would have in a bankruptcy.

I would have thought people should be dancing in the streets at the outcome.


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## Delboy (15 May 2017)

Mrs Vimes said:


> Jim is quite clear that it was a vulture fund that got burned, the bank in the case did better than they would have in a bankruptcy.
> 
> I would have thought people should be dancing in the streets at the outcome.


And the Vulture fund get their property from whom? Usually taxpayer partly/wholly owned banks.
And they get that property at huge write downs


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## Brendan Burgess (15 May 2017)

I think the point is that there was €450k available and the lenders got only €82k between them. 

Most of the €8.3m was a write off anyway. The taxpayer was never going to see any of it, Jim or no Jim, insolvency legislation or not. 

Brendan


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## Sarenco (15 May 2017)

Mrs Vimes said:


> I would have thought people should be dancing in the streets at the outcome.



Why?  Ultimately they are paying for this default.

Jim obviously got a fantastic result for his client but it's a bit jarring, to say the least, that a recently discharged bankrupt gets to live in a luxury property with no charge over his very considerable income.


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## lukas888 (15 May 2017)

I doubt very much that the vulture fund got burned,the 8.3 million was unsecured suggesting that the debtors property was sold for x amount.
As Jim has not told us how much the fund received before the debt became unsecured we can only speculate.As they typically pay ten to twenty 
cent in the pound for distressed loans they may well have come out showing a profit.The original lender most definitely got wiped out.


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