The State's main banking institutions are reviewing their loan portfolios and lending practices after two solicitors racked up multimillion-euro liabilities by taking out multiple mortgages on the same properties, write Arthur Beesleyand Simon Carswell.
As IIB Bank continued its High Court action yesterday to recover €9 million from Dublin solicitor Thomas Byrne, it emerged that banks across the board are examining whether they have any potential difficulty with the security on loans extended to any other clients.
The examinations centre on the exposure of the banks to mortgages granted on foot of solicitors' undertakings.
Such undertakings are a mechanism that enable solicitors to close a property deal without producing title records to the lender and to draw down loans without immediately registering the bank's security.
Mr Byrne's whereabouts are unknown. The Law Society moved on Monday to close his practice on Walkinstown Road, a week after the Dublin practice of solicitor Michael Lynn was closed.
The High Court heard yesterday that Mr Byrne drew down a loan of €9 million from IIB on September 7th, and the bank secured an injunction from the court on Monday, freezing his bank accounts.
Yesterday the bank secured a court order compelling National Irish Bank to disclose details of Mr Byrne's accounts. IIB is concerned that its money might be in his NIB accounts.
IIB told the court that it had discovered that some properties provided by Mr Byrne as security for its loan had already been mortgaged with four other lenders - Bank of Scotland (Ireland), which was represented in court yesterday, ICS Building Society, Anglo Irish Bank and Ulster Bank.
The court has been told there might also be difficulties with other properties mortgaged by clients of Mr Byrne. One property mortgaged by two of Mr Byrne's clients has been registered in his name.
Mr Byrne told IIB Bank by telephone last Friday that he would fax a letter showing that loans provided by another bank, Anglo Irish Bank, had been paid off. However, the letter never arrived and Mr Byrne has not been in contact since then and no response has been received from his office. The Law Society audited Mr Byrne's office on Monday after being contacted by solicitors for IIB.
In a separate development in the Michael Lynn case, Permanent TSB has issued proceedings against Mr Lynn and his former employee Fiona McAleenan to recover more than €10 million.
While Ms McAleenan's legal representative said she did not sign undertakings on which her name appeared, the action by Permanent TSB brings Mr Lynn's apparent liabilities so far to more than €40 million. Though not yet known, the full extent of his liabilities could be far higher. Three other institutions - Bank of Scotland (Ireland), IIB Bank and Irish Nationwide Building Societies - are each known to be seeking in the region of €10 million from Mr Lynn. First Active, AIB and ACC Bank have also indicated that they are owed money.
Banking sources in several institutions said the Lynn case prompted lenders to review their exposure to big clients in the solicitors' profession and other big clients. "Of course we're reviewing procedures and any lessons that can be learned will be learned," said a spokesman for Irish Life & Permanent, owner of Permanent TSB.
Referring to the Lynn case, he added: "Clearly this case involves us as well as many other banks, but whether we were involved or not, you'd be a fool not to try and learn lessons from what has happened."
A spokesman for AIB said: "As would be expected given the events of the last number of weeks, the situation is under review."
The Financial Regulator declined to say whether it had taken any specific regulatory action with banks in light of the actions against Mr Lynn and Mr Byrne.
"Any situation which would point to a weakness in internal control arrangements in banks would of course be a source of concern for us and one that we would clearly follow up with the institutions involved," said a spokeswoman.