The only guarantee that we have (if, indeed, we have any such) that there will ever be enough money available for the public to buy houses is that the banks lending that money will have confidence that their investment will be repaid.
This is the commercial reality in the global market for capital, and any legal intervention modifying the contractual obligations of housing finance has to be carefully judged.
When the terms of a loan are broken, the judge is the adult in the room. He is not at all (or should not be) concerned at the consequences of applying the law for the general issue of housing supply but, instead, only that all disputes should be resolved in accordance with law. Court cases are not by definition concerned with moral hazard considerations.
This push/pull tension between commerce and justice is best balanced when the legislators spell out how to do it. We have the independent Residential Tenancies Board (RTB) set up by statute to adjudicate disputes and eviction applications by landlords. We have generous rent assistance schemes for social housing. We have the insolvency service to manage the distribution of bankrupt mortgage holders’ assets, including the house held as security by the lender.
And now, with the new EU Directive on Credit Servicers and Credit Purchasers, for borrowers who are not insolvent but who are in mortgage arrears we have new guidelines for forbearance (including, where possible, partial debt forgiveness).
That directive is due to be signed into Irish law by December 23 of this year.
Lenders know the risks when they are lending into a consumer credit market, and price those risks in. The new guidelines are there to manage those risks in part by insisting on and structuring engagement with borrowers and in part by limiting the availability of forbearance to those who cannot pay, and not to those who won’t.
There’s safety in numbers. The EU’s new directive is something of a breakthrough. A Europe-wide process for dealing with mortgage indebtedness means no one country runs the risk of capital flight from its own borders.
Unlike the position with landlord and tenant matters, or with the Statutory Insolvency Service, there is no NGO to which lender/borrower issues must be referred before resorting to court. I believe the new directive strongly hints at the need for a new mediation process to replace of the current ad hoc and unaccountable confrontation.
Perhaps it is time for the Central Bank to shoulder the burden of providing a neutral forum to ensure compliance with the resolution modalities envisaged in their code of conduct on mortgage arrears. One way or another, under the new Directive, the Central Bank is in the frame now to regulate credit servicers.
The Directive obliges Ireland to require that credit servicers pause repossession proceedings until real engagement has run its course. But until Ireland legislates to put that moratorium into place in the law, credit servicers will still be free to proceed as heretofore. I do not know what form the new legislation will take, or when it will be enacted, but a failure to do so by December’s end will be an invitation to the EU Commission to penalise us.
And debtors who are deprived of the benefit of a new engagement infrastructure may also have a claim against the State, at least on paper.
The chief concern I have with the new EU directive is that the judges will not know the detail of the new legal position it creates. Who will tell them? It may surprise readers to learn that judges are not experts in all fields: they rely on the parties and lawyers before them to bring them up to speed.
In an adversarial contest, the lawyer arguing for repossession may take advantage of the ignorance of the borrower defendant, and the judge may not realise that he is not being given the full picture. (This, of course, is unprofessional conduct on the lawyer’s part, but some clients expect it.)
Then again, some lawyers are given clients’ instructions which are simply fabrications. The evidence is false: the court is deceived. And, because of clear “inequality of arms”, the defendant is unable to properly cross-examine witnesses or test the evidence. This is not “due process” as it is generally understood.
As Master I once threatened to refer case papers to the gardaí to investigate perjury, and was promptly injuncted by the bank for my trouble.
Ultimately in that case the High Court judge characterised the suspect evidence as just “sloppiness of the sort we have come to expect” and the bank was awarded its costs. Yet today, the “sloppy” affidavits keep on coming.
No, at present the cards are firmly stacked against the debtor. We must hope that the new directive is promptly enacted in Irish law, and that said law is used to redress the imbalance.
