Individuals who borrow money here must pay back the full amount – that's the law , says personal finance adviser Frank Conway.But you could start a reform campaign to change our outdated bankruptcy laws
ROUGHLY 75 per cent of mortgages in Ireland are variable (this includes tracker mortgages and standard variable rate mortgages). This makes Irish homeowners uniquely sensitive to rising interest rates. At the same time, the Central Bank of Ireland revealed in its latest report that approximately 10 per cent of residential mortgages here are in some sort of difficulty.
Already, 41,000 residential mortgage holders are more than 90 days behind on their mortgage repayments. This is despite continued record low interest rates at European Central Bank level, which many seasoned economists predict may increase at some point in 2011.
The recently-published report by the Government-appointed Mortgage Arrears and Personal Debt Expert Group made a series of recommendations to try and limit a growing arrears problem. Unfortunately, as we have experienced, some mortgage holders wrongly believe there is a mortgage “payment holiday” scheme in place. Unfortunately, this is NOT the case.
Let’s get some facts straight:
1.No mortgage freebies: there is NO mortgage payment holiday scheme in place in Ireland. The expert group on mortgage arrears and personal debt proposed a number of measures but none include a proposal where mortgage holders can take a payment holiday.
2.No debt freebies: There is NO debt forgiveness in Ireland. For citizens who cannot pay their debts (this includes mortgages, personal loans, credit card balances and even utility arrears, such as gas and electricity), Ireland still operates on the basis of a bankruptcy code, which is much less flexible when compared to other countries. Our bankruptcy code is very expensive and bankruptcy lasts for 12 years.
3.No freebies proposed: there are no current proposals to introduce debt forgiveness in Ireland, for either mortgages or other debts.
4.Yes, they can kick you out: banks continue to have the legal right to take your home if you do not pay your mortgage BUT they must wait 12 months after you go into arrears BEFORE they can start foreclosure proceedings. On this point, it is really important to respond to any communication with the mortgage lender.
The 12-month clause applies to mortgage lenders who have signed up to the Code of Conduct on Mortgage Arrears. This means that 12 months after a mortgage holder has gone into arrears, lenders have the legal right to begin foreclosure proceedings.
5.Hounding is OK: non-mortgage creditors you owe money to (credit card, personal loans, car finance) can chase you for payment even if this puts your ability to pay your mortgage at risk. In fact, it can often be the mortgage lender who can have the most flexible approach when it comes to arrears.
6.Helping themselves to your money is OK too! Banks can dip into your account and take payments from various accounts, even if this puts your ability to pay your mortgage at risk. Yes, it is legal and it is called “off-setting” . . . and you probably signed a form some time in the distant past agreeing to this. However, there are proposals that banks give at least three months written notice to remind customers when they plan to use this as a means of collecting on a debt.
7.Hand back the keys, well, not so fast: mortgage holders in difficulty cannot simply hand back the keys to their mortgage lender. Remember, mortgage lenders are only interested in receiving timely monthly repayments, not houses. Debt travels and failure to pay debts in full remain with mortgage holders; in addition, records of default will be placed on an individual’s credit report.
8.Creditworthiness is likely to grow in importance: there are proposals to examine how personal debt is reported and tracked in Ireland which could mean that Ireland moves down the path where personal debt and the payment of it is managed by agencies independent of the credit institutions.
In the US, personal credit reporting is a major business and is dominated by three companies, Experian, Trans Union and Equifax. A fourth company called Fair Isaacs has developed an algorithm called a FICO score that scores every American adult on their creditworthiness. This is used for everything from credit applications, employment applications and even hospital admittance. So, how you pay your bills really could make all the difference in the future.
9.Watch those repossession charges: if a bank takes repossession, you may still owe it money including any shortfall on the mortgage as well as potential court costs and any additional fees arising out of the foreclosure process.
10.We never fully let go of Charles Dickens: Ireland continues to have one of the toughest and most expensive bankruptcy procedures in Europe, putting this option out of reach for many people. In fact, various reports from the Council of Europe and the EU have called for the code to be brought into the modern era to suit the needs of a modern credit society.
11.Hail to the local politico: our politicians are the only ones who can really change the current bankruptcy laws here and bring them into line with most other European countries. Let’s hope they see the benefit of modernising our outdated system.
12.Judges offer a beacon of hope: some of our judges have become beacons of hope when it comes to the area of indebtedness. In a well-publicised case, a judge refused to send to prison a mother who was unable to comply with a court order to settle a debt.
Judicial interpretations of the law in favour of common sense are welcome but it is ultimately the re-writing of those laws that will enshrine common sense.
13.Repossession even when there is no mortgage! Believe it or not, you can lose your home EVEN IF YOU DO NOT HAVE A MORTGAGE. This happened in June of this year when an oil company successfully applied for a repossession order.
Unsecured personal debt can be converted into mortgage debt through the court process of a judgement mortgage. Any debt that gives rise to a judgement mortgage can ultimately result in the forced sale of homes or land by the lender to recover what is owed.
What can you do?
From a legal point of view, if you borrow money or owe money, you must pay back the full amount of the debt, that is the law!
Begin a reform campaign. Indebtedness is not unlike a pathogen. On an individual basis, debt can destroy families and stress communities. On a national scale, rising problems with personal debt can destroy a society.
In our society, the majority of people want to pay their debts. Many have suffered massive reductions in wages and some need emergency help. This is what a modern bankruptcy code could achieve.
It would deal with the most extreme cases, offer a practical solution to extreme indebtedness and serve as a humane solution for each citizen who experiences problems of indebtedness.
Frank Conway runs MoneyCoach.ie, a personal finance website offering advice on budgeting, money management, money saving tips, mortgages, insurance and retirement planning
