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

 

[SquirrelChaser]

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

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

I know from experience that many pre-recession loans etc don't appear on the CCR because they issued before the CCR existed; like many people my repayment history on my mortgage & credit cards from 2008 to 2013 was shall we say not stellar, but my poor history magically disappeared in its entirety when I was remortgaging in 2016 it was a total non-issue because it didn't appear on the register as none of the issuers were members at the relevant time. While that was very convenient for me personally at the time in the broader context it was in itself is a very strong argument for the CCR being a legal requirement for all loans issued over €500.

I think the OP may be misunderstanding the terms of their original loan. There's basically no such thing as a loan secured exclusively on a single asset in Ireland. When an asset (car, house, photocopier, whatever) on which an debt is secured is repossessed and sold, the asset is free & clear of the debt, but the debtor is not.

At an educated guess the loan agreement financing the OP's investment property specified the security was

• First legal charge over the investment property
• An equitable mortgage by deposit over the OP's family home which was effected by leaving the deeds with the lender

An equitable mortgage isn't registered but makes it effectively impossible to dispose of the property as the deeds are held by the bank. At the time, it's likely there was a Land Certificate for the folio (if registered) which prevents most applications on the folio without it. If unregistered, no solicitor with the vaguest competence would close a purchase without the handing over of the original deeds of conveyance/lease etc.

So I would guess that in 2011 what the borrower got was not a deal restricting the liability entirely to the investment property, but rather a release of the family home from the equitable mortgage and consequent returning of the title deeds. They would still be on the hook for any shortfall in the mortgage after the sale of the investment property.
I would say that whether the borrower remains liable today depends primarily on when exactly the last payment- from the sale of the investment property- was made. Keys handed back around 2017 may mean the property wasn't sold and cash credited to the mortgage until 2018 or even later— repossession sales can take a long time to complete, as in Ireland people are slow to bid and slow to complete, largely for cultural reasons. When the sale is complete the lender knows there's a shortfall and the amount of it, and then has 6 years to issue proceedings to recover the remaining liability. So it's entirely possible there's still an actionable debt owing to the lender.

• Note that the clock starts from the last acknowledgment of the debt; if the last payment was in 2017 but the borrower emailed the bank in 2020 acknowledging the debt by saying they had no intention of paying it, this could restart the clock.

The I'd start off by getting details of the last payment on the account, and if it's significantly less than 6 years (or the lender has issued proceedings within the 6 years) negotiating directly with the lender on a write-off amount.

If it's close to the 6 years since the last payment I'd simply run out the clock. If it's over 6 years I'd ask them to write it off on the basis that it's statute barred and complain to the regulator if not.

Clearly ignoring the issue hasn't yet made it go away. Engaging with the lender at some point will be necessary.

 

[Brendan Burgess]

So I would guess that in 2011 what the borrower got was not a deal restricting the liability entirely to the investment property, but rather a release of the family home from the equitable mortgage and consequent returning of the title deeds. They would still be on the hook for any shortfall in the mortgage after the sale of the investment property.

That is quite possible.

So the first thing to do is to show a solicitor the correspondence and get them to explain to you what the agreement meant.

Brendan

 

[ThursdayMorning]

Many thanks for the replies. Just to clarify the following points

(A) Someone said /assumed the borrower continued to collect rent but did not pay it over to the lender....and that would therefore weaken the borrowers case. That did not happen. No rent was collected by the borrower as the property was not habitable - it was more of a development property or really old fixer-upper really, as some investment properties bought during the boom were.

(B) Someone suggested "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.". Actually, a complaint was made to the Ombudsman some years ago but the ombudsman said there was a time limit for complaints and the complaint was outside the time limit / Statute of Limitations they would not investigate or comment further, or words to that effect.

(C)

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.



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.

The building society did not write in 2011 " 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." but they did write that if Mr Thursdays were to pay "two-thirds of the amount borrowed" ( which was the purchase price of the property as it was a 100% loan) , "then the building society would return the deeds of the PPR and rely on the mortgaged property". The person in the building society head office on the phone at the time also agreed with the borrower that if the borrower paid that lump sum, then the loan would rely on the value of the mortgaged property.

You are right the borrower broke the terms of the original mortgage agreement in that he stopped paying interest in 2014, and no interest was paid after that. In 2014, the borrower realized the property was not worth the third of the price he paid for it during the boom, and did not want to throw good money after bad, so wanted rid of the property and the loan.

Of course in 2011 the bank was very glad to get two-thirds of the loan repaid as a lump sum and did not envisage a long term situation where the sale of the property would yield less than the remaining third. They thought it was worth more than it was, or what it would eventually realize, but that is not the borrowers fault. It is unfortunate the borrower did not engage a solicitor when negotiating the settlement at the time, so a more watertight version of the deal could be kept rather than just emails / phone calls. The borrower's first offer (also in 2011) was 50% of the mortgage value but the bank said no to that: they said they would only have the residual debt rely on the mortgaged property if the borrower paid 2/3 of the loan off. Which the borrower did do.

(D) If the borrower relies on the statute of limitations, one person thinks "If it's over 6 years I'd ask them to write it off on the basis that it's statute barred and complain to the regulator if not." From what I understand a different poster above says not to approach the building society after 6 years. He wrote "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."

It is now 16 years or whatever since the crash and I'm sure there have been lots of Statute of Limitations cases. I wondering has other peoples experiences shown it is best or not to approach the building society after the 6 years are up? The borrower would like it settled once and for all, one good reason being there is interest notching up the whole time, and nobody likes a debt hanging over them.

It is an interesting case, and many thanks to everyone for their replies. I just came across this website very recently, excellent website, well done all.

 

[TomEdison]

The borrower would like it settled once and for all, one good reason being there is interest notching up the whole time, and nobody likes a debt hanging over them.

If the building society gets the least whiff that "the borrower would like it settled once and for all", in their mind that means "the borrower is willing to pay something to settle this matter once and for all".

If you must communicate with the building society, don't let it be in terms of settling the matter, and don't talk about interest accruing. Your posittion must be that the matter is already settled, and therefor no interest can be accruing. The correspondence always has to be to the effect that "I don't owe you any money. This matter was concluded in 2014 when you exercised your security over [property]. Please stop hassling me or I will complain to the regulator".

 

[ClubMan]

Has the person in question done this?

So the first thing to do is to show a solicitor the correspondence and get them to explain to you what the agreement meant.

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 Burgess]

they did write that if Mr Thursdays were to pay "two-thirds of the amount borrowed" ( which was the purchase price of the property as it was a 100% loan) , "then the building society would return the deeds of the PPR and rely on the mortgaged property". The person in the building society head office on the phone at the time also agreed with the borrower that if the borrower paid that lump sum, then the loan would rely on the value of the mortgaged property.

On its own that sounds fairly conclusive to me.

But again, let a solicitor look at all the correspondence, in case there is any context which affects this.

 

[Brendan Burgess]

Your posittion must be that the matter is already settled, and therefor no interest can be accruing. The correspondence always has to be to the effect that "I don't owe you any money. This matter was concluded in 2014 when you exercised your security over [property]. Please stop hassling me or I will complain to the regulator".

Tom

That is very interesting. Does clear correspondence like that denying the debt avoid restarting the clock for the Statute of Limitations?

 

[TomEdison]

It does. What restarts the clock is an acknowledgement of the debt. So "What in God's name are you talking about? I don't owe you any money!" should be safe enough.

In theory. In practice it can be dangerous, because if you engage with your creditor at all you risk being drawn in to a conversation and you need a lot of awareness and a lot of self-discipline to avoid saying anything in the course of the conversation that could amount to an admission. So best to avoid the conversation or, if it must be had, have it through a solicitor.

 

[ThursdayMorning]

• Note that the clock starts from the last acknowledgment of the debt; if the last payment was in 2017 but the borrower emailed the bank in 2020 acknowledging the debt by saying they had no intention of paying it, this could restart the clock.

The I'd start off by getting details of the last payment on the account, and if it's significantly less than 6 years (or the lender has issued proceedings within the 6 years) negotiating directly with the lender on a write-off amount.

If it's close to the 6 years since the last payment I'd simply run out the clock. If it's over 6 years I'd ask them to write it off on the basis that it's statute barred and complain to the regulator if not.

If the building society gets the least whiff that "the borrower would like it settled once and for all", in their mind that means "the borrower is willing to pay something to settle this matter once and for all".

If you must communicate with the building society, don't let it be in terms of settling the matter, and don't talk about interest accruing. Your posittion must be that the matter is already settled, and therefor no interest can be accruing. The correspondence always has to be to the effect that "I don't owe you any money. This matter was concluded in 2014 when you exercised your security over [property]. Please stop hassling me or I will complain to the regulator".

Many thank for the replies. You say you'd write and ask them to write it off on the basis its statute barred and "complain to the regulator if not". When you say the regulator, I assume you mean the Financial Services + Pensions Ombudsman (FSPO)? Would be great if the Ombudsman could decide such matters, without fobbing the matter off by saying it would be better decided by the courts etc.

​

 

[ClubMan]

Many thank for the replies. You say you'd write and ask them to write it off on the basis its statute barred and "complain to the regulator if not". When you say the regulator, I assume you mean the Financial Services + Pensions Ombudsman (FSPO)? Would be great if the Ombudsman could decide such matters, without fobbing the matter off by saying it would be better decided by the courts etc

I thought that that ship had already sailed?

(B) Someone suggested "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.". Actually, a complaint was made to the Ombudsman some years ago but the ombudsman said there was a time limit for complaints and the complaint was outside the time limit / Statute of Limitations they would not investigate or comment further, or words to that effect.

I didn't think that the FSPO entertained more than one bite at the cherry?

 

[ThursdayMorning]

I thought that that ship had already sailed?

I didn't think that the FSPO entertained more than one bite at the cherry?

Thanks for that, but perhaps there may be an argument that the complaint made to the FSPO already was a different complaint? The previous complaint was not a complaint that the Building Society should write off the debt because it is statute barred.

There is a rule, as far as I know, that "if you are making a complaint to the FSPO about something that has happened, you must make it within: 6 years from the date it happened. 3 years from the date that you became aware, or should have become aware, of it."

It is not 3 or 6 years since the borrower became aware the Building Society should write off the debt because it is statute barred.

Of course, the FSPO would probably try to wriggle out of resolving the complaint, you are right, so I am not sure if it would be the best action the borrower could take.

 

[Brendan Burgess]

The FSPO does not try to wriggle out of complaints.

If they think that it is time barred they cannot handle it.

 

[ClubMan]

Of course, the FSPO would probably try to wriggle out of resolving the complaint, you are right

I never said or implied that.

 

[ThursdayMorning]

I never said or implied that.

Apologies. What I meant was that the FSPO may or may not investigate it, I do not know? The FSPO can investigate complaints longer than 6 years from the date of the problem happening where the FSPO feels that there are reasonable grounds for a longer period and that it would be just and equitable in the circumstances to extend the time limit.

Quote from their website : "A complaint about a “long-term financial service”, can be made not only (i) within a periodof 6 years of the date of the conduct complained of, but also (ii) within a period of 3 years of a certain “date of knowledge” as prescribed at Section 51(2)(ii) of the Act and, in addition, (iii)the FSPO has a statutory discretion, regarding such complaints, to extend the time where there are reasonable grounds for requiring a longer period and it would be just and equitable in all the circumstances to do so."

A long term product is a financial product with a term of 5 years and 1 month or more, for example a mortgage.

The Ombudsman did not investigate the original complaint; it said it should have been made within 6 years. It did not exercise its discretion to investigate or comment on the matter when the matter complained about was over 6 years old.

You wrote the ship has sailed / I didn't think that the FSPO entertained more than one bite at the cherry?
Tom suggested writing to the Building Society saying "I don't owe you any money. This matter was concluded in 2014 when you exercised your security over [property]. Please stop hassling me or I will complain to the regulator". End of Tom's quote. Who knows what the regulator ( ie Ombudsman?) would say about such a new complaint about that new matter.

Thank you all for your thoughts on the matter anyway.