The word ‘voluntary’ is quite a subjective term in the context of giving up your family home, or rather, your family’s home

 

  Last week, news broke of an agreement of sorts between Allsop Space auctioneers (and their subsidiaries in Ireland) and the Irish Mortgage Holder’s Organisation (IMHO) not to sell repossessed family homes.  The restriction applies to current family homes where no debt deal or mortgage forgiveness has been agreed between the homeowner and the mortgage lender.  Allsop Space will continue to offer for sale, family homes where the owners have reached a deal with their bank over their mortgage debt.  The crucial change is that the bank must proffer this deal in advance of seizing the home. This week, the IMHO is not only calling on every auctioneering firm in the country to follow suit, but they are threatening to name and shame the agencies that decline to enter into their agreement.  This seems like a misdirected act of aggression when the real aim is to force banks to deal with homeowners with mortgage arrears, similar to the protests we saw staged at Allsop Space’s latest auction in the Shelbourne.  However admirable the aims,  bully-boy tactics, particular against the softest targets, are not the way to achieve policy change.

While this agreement provides protection to the mortgage holders’ principal private residence, it will be interesting to see how commercial premises, for example, licensed premises or service stations, where the families generally reside in a part of the building, will be treated.   In most cases, while they may be a family home, they will have been funded by a commercial mortgage.  Is the estate agent now to take on the task of deciphering mortgage documentation or just to refuse instructions from Receivers?  Neither course is practicable.  

Undoubtedly, many struggling homeowners will welcome news of this agreement; however, there is still a class of insolvent people out there – particularly early victims of the crash – who now find themselves outside of their homes, outside of the new insolvency legislation and outside of this latest agreement.  The only relief for these people will come when their property sells.  At the moment, they are deprived of their home, still accruing costs and expenses and more importantly, crushed by the weight of further financial uncertainly.  Sales of such repossessed properties have to happen or these people will remain in legal and financial limbo.  It is unfair to shut down the only mechanism that can help at this point.

I fully appreciate and support the spirit of the IMHO’s agreement, certainly it will force the banks into meaningful negotiations at an earlier stage, however, this will slow down the sale of properties that perhaps ought to be off-loaded quicker.  When we started talking about the issue of selling on repossessed family homes back in 2011, it was somewhat moot as there was so little demand in the marketplace.  But this has changed, the reality is that for every cheap property being sold, there is a ready buyer – usually a cash investor, probably your neighbour or more likely, your neighbours adult children who are starting to build lives for their own families.  Such is the circle of life. Clinging to a property is not the same as clinging to a life.  Homes come in many shapes and sizes and they are not dependent upon ownership – which most mortgage holders do not even have.  They have conditional ownership, based on maintaining financial obligations that they entered into voluntarily.  Encouraging families to fight for properties that they can no longer afford is cruel.  Lives have been lost and financial strain is cited as a huge contributing factor, is there any family out there who would not give up a lifetime of houses to have their family unit complete, albeit in a rented house.  I believe in picking your battles and for many, a mortgage is not the battle to choose.   

Earlier this year, I attended the Central Bank conference on ‘How to fix distressed property markets’.  The main thrust of the conference was to look to other jurisdictions to see how they had handled these problems and to what effect.  The one consistency in the Irish handling across all parties was and remains, the reluctance to take away the property – and not just family homes.  From my non-expert reading of the crisis from the start, every initiative aimed at solving the mortgage arrears crisis served to delay the inevitable rather than proactively stop the swell of arrears that might have allowed us to move away from repossession as main method of recovery now.   Ultimately, the government has a responsibility to ensure a functioning property market and adopting a simple policy of keeping people in their homes at all costs, is not the way to achieve this.

Michael Moore, of the IMF summed up the US position by stating “the borrower made a mistake, the bank made a mistake.  The borrower gives up the house, the bank takes the loss.  Both parties move on.” 

In Ireland, the banks were funded but refuse to move on; borrowers are struggling to sustain levels of lifestyle debt that are clearly not sustainable, they too are refusing to move on.

Ironically, this latest news story plays into the popular misconception that the banks are looking  to repossess en-masse, that they wish to become the overlords of three bed semis all around the country.  This could not be further from the truth.  The sole purpose of repossession is to minimise the bank’s loss and generate as much income as possible with the least amount of expense.  As the banks rarely want to take on the role of landlord to one-off residential lettings, sale is the practical way forward.  Holding such a volume of property becomes too expensive a solution for the lenders. If sale is not an option, suddenly repossession becomes a very expensive but illogical way forward.  If the stated objectives – to minimise loss and generate income – can happen in another way, like entering into deals and arrangements with the struggling homeowner, then the banks will be satisfied.  But what about repossessions that have taken place over the past number of years, where no prior deals or arrangements were put in place? Obviously, I can appreciate that if every auctioneering firm in Ireland to sign up and the banks will have to work with people but, to  my knowledge, this agreement is not retrospective.  Unpalatable as it may be to people, repossessions – whether voluntary or involuntary – will have to happen.  Auctioneers are not in a position to stop this.  In fact, what the last few years have proved is that the Receivers could sell a year’s worth of below market value properties within a month if they had the stock and resources. 

The reality must be faced; repossessions will be necessary in some circumstances and these by their very nature will not be voluntary in the truest sense of the word. It is fair to say, the word ‘voluntary’ is quite a subjective term in the context of giving up your family home or rather, your family’s home.

There is one point that most parties to this debacle can agree on:  this mortgage arrears crisis, if left to the banks to deal with, has the potential to collapse the country.  People outside of this wreaking ball situation are probably not aware but the current procedure is that real debt forgiveness or debt deals are only happening after the repossessed homes sell.  This applies to voluntary and involuntary repossessions.  Clearly this involves the mortgage holder taking a huge risk that their lender will, in fact, play fair.  What the IMHO are striving to do is ensure that any family who does lose their home, will not have to face further uncertainty about the balance of the mortgage outstanding after sale.  And this is to be applauded but let us be clear; the issue is debt forgiveness and not repossession. 

 

 

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