EBS not honouring settlement agreement made pre sale of mortgaged property

[ThursdayMorning]

A borrower bought an investment property at the height of the Celtic tiger. The mortgage was interest only for the first 2 years and was roughly 100% of the value of the investment property. The security for the mortgage was provided by the deeds of the borrowers own family house (PPR) than he lived in, which there were no borrowings on. The borrower gave the deeds of the PPR to the building society for security.

About 5 years later, in 2011, during the economic crash, the borrower negotiates a deal with the Building Society where the borrower pays a substantial 6 figure lump sum settlement sum to the building society, about 67 % of the mortgage value, and in return the building society agrees to returns the deeds of the PPR ( borrowers house he and his family live in) and agrees that the debt will there-after rely on the investment property. The deeds of the PPR were returned and the borrower collected them from the EBS office. Unfortunately there was not a solicitor involved in the settlement in 2011 but there is a record of what happened through emails etc.

A few years after that, about 2014 the borrower stops paying interest on the mortgage and a few years later the building society appoints a receiver for the property, the borrower gladly and voluntarily hands back the keys immediately and the investment property is sold, about 2017. There is a shortfall as the investment property did not sell for as much as the Building Society thought it was worth when the lump sum settlement was made. I'm sure the bank was disappointed as in 2011 when it done the deal it probably never thought the value of the mortgaged property would be less than 33% of its original mortgaged amount.


The building society has since claimed the borrower is responsible for the shortfall and sends a statement every year. The borrower has not paid anything to the building society since 2014 as he understands that the agreement in 2011 was that the building society mortgage was to rely on the mortgaged investment property.
The building society got two-thirds (67%) of the loan repaid in 2011, it got all interest paid from when the loan was taken out until 2014 and it got the full proceeds of the mortgaged property when it was sold in 2017. There is still a shortfall / residual debt / call it what you want.

I cannot understand why the building society will not tidy up its affairs ; someone suggested it may be because it had the debt originally insured, or simply wants to keep this debt on its books rather than writing it off? Does anyone know in this instance would a 6 or 12 year statute of limitations apply from say 2017?

This is a genuine case. Any constructive advice is very welcome and really appreciated, as all this hanging over the borrower over the years has not helped his health problems and he would really like it settled once and for all. Thank you in advance.

 

[TomEdison]

Short answer: I think any debt that was owed here is probably statute-barred and the building society cannot recover it now. (Limitation periods are complex and there may be facts not given in the OP that would enable the building society to argue that the debt is not statute-barred, so I can't be definite about this. But it looks that way to me.)

But there is no mechanism by which you can compel a creditor to acknowledge that a debt is statute-barred and to stop pestering you with demands for payment. All you can do is keep binning the demands and on no account ever reply to them, in case you end up saying something that inadvertantly acknowledges the debt and enables the creditor to take enforcment proceedings.

I get that the borrower wants peace of mind, but he's not going to get it by entering into any kind of correspondence with the building society, and there is a risk that by doing so he could make his situation worse. All I can suggest is that he goes to a solicitor and pays them to review the history of the matter and to express an opinion on the building society's chances of successfully pursuing this debt. That might reassure him that any enforcement proceedings are very unlikely to be successful and, therefore, are very unlikely to be brought.

Longer answer: As I see it, when the loan was advanced in about 2006 it was secured by a mortgage over two properties; the purchased property and the borrowers PPR. In 2011 a substantial part of the loan was repaid and the mortgage over the borrowers PPR was released. In 2014 the borrower defaulted on the loan; enforcement proceedings resulted; the mortgage over the purchased property was enforced, the property was eventually sold in 2017 and the proceeds were applied to reduce (but not clear) the loan.

A loan secured by a mortgage can be of two kinds:

The typical loan is secured by the mortgage but also by the borrower's obligation to repay. If the mortgage is enforced, and the proceeds don't clear the loan, the borrower remains liable for the shortfall. Plus, the lender has the (theoretical) option of not enforcing the mortgage at all; he can go straight to suing sue the borrower for the debt, and enforcing against any or all of the borrowers assets.

But a bank can lend on what's called a non-recourse or limited-recourse basis — there's a term in the loan under which the bank agrees that in the event of default it will have recourse only to the mortgaged property; it can enforce the mortgage, but do nothing else.

Non-recourse loans are not common in Ireland, but they are not unlawful, and they do happen sometimes.

It's not likely that, when this loan was advanced in 2006 or so, it was a non-recourse loan. If it were, that would have been specially agreed at th the time; it would be stated in the loan documentation; both parties would know about it; and the building society would probably not now be treating the loan as outstanding.

The borrower's belief or understanding is that part of the deal in 2011 would be that, thereafter, the loan would be a non-recourse loan; the building society could enforce against the remaining mortgaged property, but nothing else. Clearly, that's not the building society's belief or understanding. If there was such an agreement it wasn't formally documented; no solicitor was involved. Obviously, without looking at the whole course of dealing between the parties and examining all the correspondence and emails its not possible to say what view a court would take on this question.

But it shouldn't matter. The last time the borrower made any payment of the loan or (so far as we know from the OP) acknowledged that the building society was owed any money at all was some time in or before 2017. A debt is generally statute-barred after 6 years. If the building society issues new enforcement proceedings at this point to seek to recover any amount from the borrower on foot of the debt, the borrowing should have a good defence based on the statute of limitations. But, if that defence fails (because, e.g., the borrower has acknowledged the debt some time within the past 6 years) then the borrower can run the alternative defence that the building society varied the loan in 2011 to make it a non-recourse loan.

 

[Brendan Burgess]

About 5 years later, in 2011, during the economic crash, the borrower negotiates a deal with the Building Society where the borrower pays a substantial 6 figure lump sum settlement sum to the building society, about 67 % of the mortgage value, and in return the building society agrees to returns the deeds of the PPR ( borrowers house he and his family live in) and agrees that the debt will there-after rely on the investment property. The deeds of the PPR were returned and the borrower collected them from the EBS office. Unfortunately there was not a solicitor involved in the settlement in 2011 but there is a record of what happened through emails etc.

I would be slow to rely on the Statute of Limitations. It would only be a last resort.

My guess is that the EBS is just administratively incompetent. They don't have this record that they converted the loan into a non-recourse loan.

You do have this record.

The facts do support your account. You paid a large sum off the mortgage. They gave you the deeds.

You need a solicitor to review this correspondence to see if it's crystal clear that they agreed to limit their right to the property itself.

There was a tendency in the banks to do deals on a nod and a wink basis. "Look. Pay as much as you can off the loan and we will give you the deeds back. And sure we will deal with any shortfall later". But that would not be legally valid. You would still owe the shortfall. But if they sent you an email saying "If you Mr Thursday, pays the sum of €120k off the mortgage we will return the deeds on your home, and in the event that you sell the investment property at a shortfall, we will limit our recourse to the proceeds of the sale", then you would have nothing to worry about.

A few years after that, about 2014 the borrower stops paying interest on the mortgage and a few years later the building society appoints a receiver for the property,

This worries me. You continued to collect rent but you did not pay it over to the lender. I would suspect that whatever agreement you reached in 2011 provided for this. "If you Mr Thursday, pays the sum of €120k off the mortgage we will return the deeds on your home, and in the event that you sell the investment property at a shortfall, we will limit our recourse to the proceeds of the sale. This agreement subject to your paying the interest in full on the mortgage between now and the eventual sale".

So, is it possible that you did not actually adhere to the terms of the agreement? And the agreement is void. I would be really annoyed as your lender if you pocketed the rent for a few years and didn't make any payments.

So you need to get a solicitor to look at all the paperwork and what the conditions were and if you complied with those conditions.

If the solicitor is clear that you have a watertight case, then, you should write to the EBS and tell them that their continued pursuance of this is causing you stress. And if they don't agree to write off the balance, you complain to the Ombudsman.

The Ombudsman is much better than the court for you as they can look at all the facts and not just the technical legal issues.

 

[Brendan Burgess]

If your case is not watertight, then you should rely on the Statute of Limitations. But that assumes that you have not called them since 2017 and told them to stop sending you the letter.

As Tom has pointed out the Statute is complicated. Is it a secured loan? When did the clock start? Was it when the property was sold by the Receiver?

 

[Brendan Burgess]

Contact the Central Credit Register and get a copy of your Credit Report.

Apply for your credit report and other rights

Information for consumers about the Central Credit Register

www.centralcreditregister.ie

If the loan does not appear on it, then that is additional support for your argument.

If it does appear, and it should not, then that is an additional ground for complaint.

Brendan