12th July 2017
Minister highlights Government initiatives to address mortgage arrears
Insolvency system already under review by Government
The Minister for Justice and Equality, Charlie Flanagan TD, has told the Dáil that he has serious reservations about the Mortgage Arrears Resolution (Family Home) Bill 2017, because it is unlikely to survive a challenge on constitutional grounds.
Minister Flanagan said that the Government had prioritised supporting and assisting financially distressed borrowers in mortgage arrears on their homes by introducing a raft of measures. He noted that mortgage arrears have been falling consistently for 15 consecutive quarters.
Minister Flanagan stated:
“The Government’s legal advice is that this Bill is very likely to be unconstitutional, and it contains other legal defects.”
He pointed out that the bill would lead to the creation of a quasi-judicial Mortgage Resolution Office and an Appeals Office, with “extremely wide-ranging powers to intervene in and change the vested constitutional legal rights and obligations of private parties. However, such powers are exclusively reserved to the Courts, under Article 34 of the constitution. Advice from the Attorney General is that the proposed far-reaching powers and discretions of these bodies would contravene Article 34”
The Minister added:
“The Bill is also risks having unforeseen negative effects on the distressed borrowers it is trying to help. For instance, it deals only with mortgage debt – while borrowers need a solution which resolves their overall debt picture and returns them to solvency. Furthermore, the Bill does not protect the borrower against other creditors registering a judgment mortgage against their home. The proposed new Mortgage Resolution process is also resource-intensive, and seems likely to generate a high proportion of appeals and legal challenges.”
Minister Flanagan warned that the Bill being debated in the Dáil was “an over-simplistic solution, in this very complex area, and risks creating a range of serious and unintended negative effects – most importantly, for the distressed mortgage holders themselves.”
The Minister also questioned the fact that the Bill:
- Does not define the levels required to qualify as “financially distressed”
- Makes no provision to change a Mortgage Resolution Order, if the borrower’s circumstances change
- Assigns the new bodies to the Insolvency Service of Ireland – leading to “ a number of conflicts between the statutory functions of the ISI and those proposed for the new office”
- Leaves the home open to further judgements by unsecured creditors
- Is likely to lead to a very high proportion of (expensive) objections, appeals and legal challenges
- Deals only with borrowers’ homes – potentially leaving them open to judgements on other debts (unlike the ISI arrangements)
Minister Flanagan highlighted the measures introduced by the Government and its predecessor, including:
- the Personal Insolvency Act 2012,
- the Court’s power under section 2 of the Land and Conveyancing Law Reform Act 2013 to adjourn repossession proceedings so a borrower can explore whether personal insolvency can resolve their financial difficulties
- the Personal Insolvency (Amendment) Act 2015, which removed the ‘bank veto’ in personal insolvency cases by introducing a Court power to review an unreasonable refusal by a creditor,
- the development of MABS resources across the country to assist borrowers in home mortgage arrears, including 32 specialist in-house mortgage debt advisers, and Court Mentors attending all repossession hearings across the country to provide support and information to unrepresented borrowers,
- the ‘Abhaile’ Mortgage Resolution Service (2016), set up to implement the first bullet in the Programme for Government commitments on mortgage arrears, and providing free independent expert financial and legal advice and assistance, via MABS, to borrowers at risk of losing their homes due to mortgage arrears.
He stated that these measures were bearing fruit:
- Some 447 applications have been made to the Courts under the new Personal Insolvency court review under the Personal Insolvency (Amendment) Act 2015 (where creditors refuse a personal insolvency proposal by a borrower which is considered reasonable by the personal insolvency practitioner.) The review appears to be operating successfully, and has already been interpreted and applied in a number of High Court judgments.
- Uptake on the Abhaile service is well ahead of expectations. As of 7 July 2017, 8,034 vouchers for free financial or legal advice from a personal insolvency practitioner on a panel run by the Insolvency Service, or a solicitor on a panel run by the Legal Aid Board, had been issued under the Abhaile service. As of end June 2017, the MABS in-house mortgage debt advisors (now also part of Abhaile) had helped almost 4,000 borrowers. 1,300 borrowers facing repossession have been referred by MABS Court Mentors for specialist help and advice. Abhaile duty solicitors also attend repossession hearings before the County Registrar to provide legal assistance to unrepresented borrowers.
- Data collected on the 1565 borrowers who consulted a personal insolvency practitioner under Abhaile in 2016 would indicate that the service is reaching its main target group, of those in the deepest arrears. Insolvency Service statistics indicate that 2/3 of these borrowers were in the deepest category, of arrears exceeding 720 days’ payments. A quarter were already before the courts on repossession proceedings. 60% were recommended to avail of a Protective Certificate under the Personal Insolvency Acts.
- Take-up of statutory solutions under the Personal Insolvency Acts increased significantly, probably due both to the Abhaile service and to the end of the ‘bank veto’ in late 2015. Regarding the Personal Insolvency Arrangement, which is the solution designed to deal with mortgage debt as well as other debts – there were 791 applications in 2014, 1291 in 2015, 2530 in 2016 and 1,144 in Q1 alone of 2017. A 2016 sample study by Insolvency Service of outcomes in Personal Insolvency Arrangements shows that in 89% of PIAs, the borrowers remained in their homes.
In summation, the Minister told the Dáil that: “The Government is open to looking at all constructive solutions. I fully appreciate the Deputy’s very genuine intentions, but this Bill is fundamentally flawed, appears incompatible with the Constitution, and risks adding to the problems of those in the worst arrears.”