Banking Update: You Show Me Yours – The Future of Investor Repossessions?
02 November 2018
In May 2018 the Minister for Justice and Equality announced the drafting of the Courts and Land and Conveyancing Law Reform Bill 2018. The proposed legislation seeks to increase protections for borrowers facing repossession proceedings. If enacted, the Irish courts will be obliged to take into account certain prescribed factors when considering an application to repossess a residential property.
The Bill has its genesis in the ‘Keeping People in their Homes’ Bill previously proposed in 2017.
There has been extensive political debate surrounding the protection of borrowers whose debts have been acquired by foreign investors from Irish-based banks. Concerns have been expressed that these non-Irish investors will not be held to account in the same manner as domestic lenders and as a result, will treat borrowers more harshly than the loan originators.
Factors to consider
The Minister’s press release states that the Bill would require the court, when considering an application for a possession order, to have regard to the following factors:
- The overall proportionality of the application for a repossession order
- The circumstances of those resident in the property
- Any proposals put forward by either party which would enable the borrower to remain in the property, including participation in a Government scheme for distressed mortgage holders, for example, the Mortgage to Rent Scheme or the Abhaile scheme
- Where the loan has been sold, the amount paid for the loan by reference to the amount of debt outstanding in respect of the loan.
If implemented as proposed, the Bill will have implications for investors seeking to acquire loan portfolios comprised of principal private residences, such as:
- The repossession process in Ireland is already slow and expensive. The proposed law would add to investor concerns regarding their ability to protect their assets through enforcement actions
- It has yet to be confirmed whether the Bill will contain grandfathering provisions, exempting historic acquisitions from scope. If the Bill applies retrospectively, it would significantly impact the value of these previously acquired assets, and
- Disclosure of the price paid may impact on future pricing of loan portfolios given the commercially sensitive nature of this information and the potential for increased costs due to the proposed reforms
Obliging the court to consider additional and often, subjective factors, will only add to the existing cost and administrative burden, increasing the deterrent for potential foreign investment at a time when banks are still under pressure from the ECB to remove non-performing loans from their book.
Current public and political sentiment is indicative of an increased propensity towards borrower protections. While the text of the proposed Bill has not yet been published, and a time frame for pre-legislative scrutiny is still to be determined, this move could prove worrisome for past and potential loan purchasers.
If you would like to discuss the potential impact of the proposed Bill on your business, please contact a member of our Financial Services Team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.