Advice group calls for residual debt law

THERE IS an urgent necessity for new rules to deal with remaining debt after the sale of repossessed homes in negative equity, Flac, the Free Legal Advice Centre, has said.

Flac director general Noeline Blackwell said borrowers who handed their negative equity homes to lenders after falling into mortgage arrears did not always realise they would still owe the balance of their debt after their home is sold.

Negative equity occurs when a property drops in value and is worth less than the mortgage secured against it.

According to figures recently released by the Financial Regulator, mortgage lenders owned 331 repossessed or surrendered properties by the end of last September. Some were in negative equity; many of the properties currently before the courts in repossession cases are also in negative equity.

Under Irish law, mortgages are personal debts secured against property. If a lender sells a repossessed home for less than its outstanding mortgage, the borrower is still liable for the balance. The borrower is also liable for any interest that accrues on those borrowings, for the legal costs of any proceedings and even for costs involved in selling the property.

For many people who do not have the means to pay off this debt, they are left with such a poor credit rating they may never be able to borrow again and can be pursued for years to come.

Asked by The Irish Timeshow they were dealing with any remaining debt once repossessed properties were sold, lenders highlighted the legal responsibilities of borrowers.

None of the lenders was willing to give concrete examples of how they had dealt with borrowers in negative equity situations, but they acknowledged their right to pursue people for the balance of the debt. They said they dealt with each borrower “on a case-by-case basis” and were differentiating between those who could not pay and those who would not pay.

However, unlike as in cases of commercial debt, lenders did not say they were writing off the loan balances of those in the can’t-pay category.

Ms Blackwell said Flac had never advocated a policy of walking away clean from debt, but there should be new rules to help borrowers. Legislation in the area was at least 100 years out of date, she added.

“A person who is seriously indebted should be able to approach an agency to come to some arrangements as to how and what they will pay,” she said.

She also said the value of loans to individuals should be examined.