Bank imprudent lending 90 times salary / incorrect "buy-to-let" valuation €17m / acre

What responsibility have building societies to ensure borrowers are capable of repaying loans? This happened to someone I know in 2004 / 2005, when he was on medication (anti depressives and lithium etc ), out of work and not thinking straight, having got an unsolicited sales call from a mortgage broker.

He got a loan for a buy to let mortgage, in a country town, for 90 times his annual income. How did that slip though the net, or was that usual?

The property in the "buy to let" was valued incorrectly - it was a run-down 100 year old property and, for example, the building society valuer said it had 3 utility rooms etc, which it did / does not. The valuer for the building society valued the 3 terraced run-down, unoccupied cottages on an eleventh of an acre site at approximately one and a half million - thats €17.000,000.00 an acre!

Other valuers before and since have valued it at a lot less, but the borrower did not know that when he took out the loan. He does have the benefit of those written valuations now though, thank God. Shouldn't the valuer for the financial institution have valued the property correctly? Should not the financial institution have checked to see if the borrower had a job or business when taking out the loan, and should not the financial institution have checked to see if the borrower had the means to make repayments?
Should some sort of even basic financial projections not have been sought?

The borrower has never made a monthly capital repayment, has the derelict "buy-to-let" on the market since 2006 without any offers, and it has recently been valued at about 3% of cost. The borrower has had a very frugal lifestyle over the past 8 years and has used the proceeds from the sale of other family property to pay some of the mortgage to date. There is a big shortfall.

He has a few options. He could, and possibly will, go to England and seek bankruptcy there. He has no 3rd level qualifications, getting old and cannot get a decent job. Alternatively, as a business project, he is currently undertaking a viability study in to opening the houses as a tourist attraction.....to show how some people lived over 100 years ago ( 5 ft 6 inch high doorways in the cottages etc ), through to the absurdity of the 2004 / 2005 celtic tiger years when these "buy to lets" were valued by the building soc valuer at €17 million an acre, in this quiet side-street in a country town. He is also writing a book / has it half written on his dealings with the financial institution, the numerous correspondences and their inability to answer questions etc. He finds writing the book quite theraputic and in any case has little else to do now.

Given the uniqueness of the case - €17 million is arguably the highest price paid per acre for land outside of Dublin (does anyone know of any higher? ) - do you think there would be a market for such a book? It is one persons tale of how his life was ruined by a financial institution lending money when it clearly should not have. He has to take some responsibility for his actions as he signed on the dotted line, although he does feel very misled. Surely someone apart from the young lady in the mortgage brokers should have met him / checked his loan? Lots of people have suffered during the downturn but surely 90 times income + €17million / acre for a "buy to let" mortgage valuation is a record? He thinks the tourist attraction / book may generate some income...any thoughts? At the very least it may get him meeting other people who may feel they have been exploited by an unscrupulous lender / valuer, maybe form a support group etc.

He got a loan for a buy to let mortgage, in a country town, for 90 times his annual income. How did that slip though the net, or was that usual?

Click to expand...

The source of repayments for buy to lets is from the rental income. The lender would probably have been happy to lend if the rent covered the mortgage repayment.

I have seen this " Shock ...horror ...They lent me 20 times my income" argument before when it's a lot less relevant as it's a buy to let. I have seen it used when the purchaser had substantial other assets as well, so his salary was just irrelevant.

OP, I would say that if the Bank were aware of the borrowers medical condition, there is a case for careless and reckless lending. If no capital repayment have been made yet and the loan was taken out in 2004, he would probably be best off by speaking to his solicitor. Lenders do have a process of having matters ticked in a row of authority. If it was kept a secret about his condition then he would be liable.

I don't think there would be a Market for the book to be honest. Of course it depends on how good a writer he is, but the premise of the book is not one I think many people will be interested in.

I'm not sure about the visitor attraction idea either. He should cut his losses and head to the UK.

By the way I think it is very unfair for you to imply the banks should not have lent to a person on anti depressants, or such medication impaired decision making.

Brendan Burgess said:

The source of repayments for buy to lets is from the rental income. The lender would probably have been happy to lend if the rent covered the mortgage repayment.

Click to expand...

Thanks for your comment, but the problem is the rent would not have had a chance of even paying 5% of the mortgage, as the property was basically unrentable, it being so old and in need of modernization, and the price paid so high. The 3 terraced old cottages may be good for animals or something. It is derelict, with tiny rooms, small windows, internal doorways 5 ft 6 inches high, low ceilings, structural cracks, no heating etc. The mortgage including interest over the term of the 20 year loan was two and a half million euro. How high would the rent have needed to be to pay the building society an average of €125,000 per year out net of taxes / expenses? Why did the building society lend so much without checking could it be repaid as per loan agreement? The "buy to let application form" - of which the borrwer recently got a copy, after much per perseverance, does not appear to be filled in properly, with for example the box for the "projected rental income per annum " left empty. Why was that?

The lender offered the initial years interest only, to get the borrower hooked on his "pension". The borrower was fobbed off / not allowed look at the inside of 2 of the 3 cottages until it was too late / the mortgage was signed and drawn down, and the borrower got an awful shock then. He was assured by the lady in the mortgage brokers who he solely dealt with that the property was in good condition. The borrower has it in writing "that the underwriters will request a Valuation of the house by a local valuer...just to confirm the house is in good shape and is good security." It was very far from being in "good shape or good security", as confirmed by other valuations from reputable professional valuers before and since. The valuer for the financial institution was a home based valuer who had spent decades of his previous working life in a completely different trade / business. The mortgage incidentally was for over 100% of the purchase price. ( about 40k more).

SarahMc said:

I don't think there would be a Market for the book to be honest. Of course it depends on how good a writer he is, but the premise of the book is not one I think many people will be interested in.

Click to expand...

Thanks for your comment. I'm not so sure - in the west of Ireland people are very interested in property and the price of property. Think of JB Keanes play "the Field". As its the most expensive land known outside of Dublin who is to know maybe the whole saga could be made in to a play one day....based on a true story!

SarahMc said:

By the way I think it is very unfair for you to imply the banks should not have lent to a person on anti depressants, or such medication impaired decision making.

Click to expand...

He was attending a consultant psychiatrist and on a cocktail of other medication such as lithium as well as anti-depressants when he bought the buy-to-let, having being told that "property was his pension". He was doing part time menial work like delivering leaflets door to door, and had not a proper job or business when he took out the loan. When the mortgage brokers cold called trying to sell a "normal" pension, he told them he did'nt believe in pensions / could not afford one. Then he was told about the importance of providing for his future etc. His excuse then was about the stock market crash and how he was afraid to buy one because shares could fall like on black Monday etc. If only he had bought a normal pension instead of this buy-to-let investment he was told would be his pension. Or even any other buy to let - properly valued - would have been better.


I do not think his decision making was unimpaired when he took out a mortgage for 17 million an acre for an old "buy to let", do you? Other professional valuations before and since indicate it was not remotely a viable "buy-to-let". While the broker is believed not to have had much experience or dealings with the building society in question, and does not deal with them now, surely it was up to the building society to ensure certain standards were adhered to? Should not someone from the building society have looked at the "buy- to-let" application form before granting the mortgage? Or if they did, why did they grant the mortgage, given the borrower never remotely had the income to make a monthly capital repayment?

SarahMc, maybe the borrower attending the consultant psychiatrist and being on a mixture of serious medication did not impair his decision making, maybe it did ; but surely the building society should have checked was the borrower capable of making the repayments, if the property was " in good shape and is good security" etc? I think this case is a lot different to the normal "buy-to-let" mortgage.

The broker can't be as innocent here as it sounds, have you seen all the documentation the bank underwriters were furnished with before they made a decision?

wbbs said:

The broker can't be as innocent here as it sounds, have you seen all the documentation the bank underwriters were furnished with before they made a decision?

Click to expand...

The building society finally, after many requests over a few years, released a copy of the "mortgage loan application" and the property valuation. Is their other documentation dating back to the time of the mortgage which the bank should release?

The borrower was fobbed off / not allowed look at the inside of 2 of the 3 cottages until it was too late

Click to expand...

Hang on. The borrower was not forced to buy. This is crazy. People buying stuff without inspecting them.

I suppose the only issue here is if the guy was so obviously vulnerable that the broker should not have "sold" him the loans.

However, I suspect that you are hearing only one side of the story.

Brendan

I certainly would not belong to any grouping defending bankers or their agents. I just find it hard to believe it that a purchaser was not allowed to inspect a property to his satisfaction. I also find it difficult that your acquaintance never discussed this with any friend or family member. Would his solicitor not have had a word with him if he was on so much medication. What has he done about this in the 8/9 years. I just think there is more to this than has been furnished so far. It just looks a bit far fetched

Dermot said:

I certainly would not belong to any grouping defending bankers or their agents. I just find it hard to believe it that a purchaser was not allowed to inspect a property to his satisfaction. I also find it difficult that your acquaintance never discussed this with any friend or family member. Would his solicitor not have had a word with him if he was on so much medication. What has he done about this in the 8/9 years. I just think there is more to this than has been furnished so far. It just looks a bit far fetched

Click to expand...

plus 1

Dermot said:

I certainly would not belong to any grouping defending bankers or their agents. I just find it hard to believe it that a purchaser was not allowed to inspect a property to his satisfaction. I also find it difficult that your acquaintance never discussed this with any friend or family member. Would his solicitor not have had a word with him if he was on so much medication. What has he done about this in the 8/9 years. I just think there is more to this than has been furnished so far. It just looks a bit far fetched

Click to expand...

+ 1

I completely forgot about the solicitor - unless he was conspiring in the scam as well?

Brendan Burgess said:

Hang on. The borrower was not forced to buy. This is crazy. People buying stuff without inspecting them.

Click to expand...

Thanks for your replies. You could say the borrower was crazy - indeed his own bank thought he was mad when he tried to borrow money off them in 2004, and refused him. He knows himself now he was not well at that time.

As regards inspecting them, the borrower was fobbed off by the lady in the brokers and was given excuses like keys not available etc. The borrower trusted the assurance from the valuer he paid approx 500 euro. The borrower knew the valuer over a few decades when the valuer had worked in a different line of business. This was the valuer approved by the building society, who said the valuation was necessary to ensure the property was "in good shape and is good security". The borrower then trusted the people in business suits - they were the experts.

Of course the borrower should have inspected the property, if he was in a fit state of mind, and the solicitor should have suggested if not insisted a second valuer inspect the property. Whatever about "People buying stuff without inspecting them", surely it was the job of the building society to inspect the people it lent money to / wonder how it was going to be repaid? All it would have taken was a correct phone call or two. It would have taken very little to see the borrower had no means to repay the 2.5 million net of tax in monthly repayments. Therefore no loan, end of story, we would not be discussing this. However, that would have meant various professionals missing out on commission and bonuses.

Dermot said:

I also find it difficult that your acquaintance never discussed this with any friend or family member.

Click to expand...

He did discuss it with a few others, and they were shocked but nothing was done to stop him. He thought it was his pension - in fact he was told by the solicitor that property was his pension and congratulated him accordingly.

Dermot said:

Would his solicitor not have had a word with him if he was on so much medication.

Click to expand...

The solicitor made about 25 grand on the conveyancing. The borrower was thanked and warmly congratulated on doing the right thing.

Dermot said:

What has he done about this in the 8/9 years.

Click to expand...

In 2005 after he drew down the mortgage and got the keys, and saw the inside of the properties fully, he realised he made a mistake. In 2006 he put it on the market with a leading firm of estate agents, who advertised it nationally and locally, at a cost of many thousands to the borrower. It did not sell. In Autumn 2006 the property market stalled as people waited for changes in the budget. Some years later he gave it to another estate agent - it did not sell. It has recently been valued at 3 to 4% of purchase price. Of course hindsight is a wonderful thing now.

As regards the solicitor, to went to another firm of solicitors just before the 6 year statute of limitations ran out, and paid for and got a barristers opinion. The barrister was of the opinion the property was never worth what the borrower paid for it, or what the building society valuer valued it at. No surprises there. 17 million euro an acre for a quiet side street in a country town in 2004 was simply off the richter scale in comparison to all other comparables. Legal proceedings commenced against the solicitor involved in 04/05. The new solicitors had the file from the borrower, but he was told the next step was to get the file from the solicitor who advised / conveyanced in 04/05. I am not sure of the latest on this end of things, but last I heard was despite many requests from the new solicitor to the solicitor in 04/05, they have refused to hand up their file - perhaps this indicates they have something to hide?

As regards the building society, the borrower is currently halfway through writing a book about the whole thing, and it contains copies of valuations, correspondence etc. It may never get published, but at least it will be a record. In the past year or so he has finally succeeded in getting a copy of the valuation and the buy-to-let mortgage application. He was shocked the valuer included 3 utilities when there were none, and other major discrepancies. The building society refuses to answer some questions he has put to them many times, and he has correspondence from them showing that. The building society refuses to indicate if their home based valuer had any valuation qualifications, or experience in working for others valuing property, or why he valued the property at the equivalent of 17 million euro an acre.

When the borrower contacted the ombudsman / financial regulator etc there was always some excuse - it was just outside the 6 year statute of limitations or whatever.

Rather than fleeing to England to seek bankruptcy, which he may still do, the borrower sees a gap in the market for a tourist attraction / shrine to the Celtic Tiger property era. What else can he do - retail and manufacturing are very difficult, and the borrower has no qualifications to get a job, especially at his middle age. Elsewhere in the west there is a museum of country life etc, but nothing much locally. The 3 terraced cottages are close to some surface open car parks, and there is a tourist office not far away. Rail and bus links are nearby. In wet days in the summer, tourists are looking for something to do / see.
He envisages leaving one cottage more or less as it is, to show how people lived 100 or 120 years ago. Maybe a few mannequins could be dressed in old clothes. Tall foreigners would think the 5ft 6 inch high internal doorways very quaint, how the little people of Ireland lived all those years ago in such tiny dark rooms! Another of the terraced cottages - say the one with the worst structural cracks - could contain the valuations on the wall - the one from the nineties, the infamous one from Jan 2005, the one from late 2005, and one or 2 others. A copy of the "buy to let mortgage application" could also be displayed. People would be standing on the most expensive land ever valued / sold in Ireland outside of Dublin.
The third cottage could contain perhaps a coffee area, and a place where people could buy copies of the book, even meet its author,the borrower.

People in Ireland and further afield seem fascinated with property prices in Ireland, and its envisaged p.r. / free publicity for the venture will not be difficult to get. Tourists would wonder how did an Irish building society value and lend so much money for so little, and they may be able to understand a little bit better why the banks and building societies in this country got in to trouble. It would be an education for the youth of today, who will be the adults of tomorrow. Having been to the very much visited Anne Franks house in Amsterdam, where visitors are taught history must not repeat itself, maybe people seeing the most expensive property in Ireland ( outside of Dublin ),and the state of it, will see first hand the craziness that happened during our tiger period, and how we must endeavour not to make the same mistakes in future generations.

It would be a way of getting some use out of the 3 cottages. It may also be a way of trying to pay more interest to the building society? It may be worth a try? The borrower has already used proceeded from the sale of family property to repay some of the capital, after coming under pressure from the building society some years ago, when the initial interest only period expired. The borrower has taken a lot of blame and pain himself.

Incidentally, anyone know the next most expensive piece of land outside of Dublin? The borrower contacted the IAVI / RCIS, the CSO etc and none could think of any that were €17 million an acre in 2006, never mind 2004, but he wants to be certain.

Hi honest

Can you give us some hard data on this?

How much did he pay for the three houses? They were valued at €1.5m

He would have signed the mortgage application. He was doing "menial work". What income did he put in?

How much was the mortgage? Around €40k more than the valuation it seems

Did he have a family home? How much was it worth and how much was his mortgage on that?

What other assets had he at the time, if any? " has used the proceeds from the sale of other family property". Was this his property or did it belong to other family members?

Was there a guarantor for the loan?



I can't find any mention of an estate agent is all this? Was there no estate agent involved?

He was cold called by a mortgage broker? That is a bit unusual. Did he know her from before? "Surely someone apart from the young lady in the mortgage brokers " So he took his advice from a "young lady"

What was the basis of his legal action against the solicitor? If the fees were paid, the solicitor has no basis for not passing on the files. His new solicitor and barrister would know that.

cashier said:

I am sorry but I really think this story is just too far fetched to be true. I have seen old cottages sell for over inflated prices during those boom years ie €100,000 to €150,000 with maybe an acre or two thrown in for good measure, when prior 1995 they would possible have sold for 10 grand.

Click to expand...

Alas it is true. The property was not in the middle of the country. I do not want to identify it on a public forum, but the property is in a town in Ireland, one of its bigger towns. It is a block from the main street in the town. Its a side street, with 3 shops facing on to the street, other derelict properties, a few open (not multi-level ) car parks etc. That said, the price it sold for was so exceptional that it made its own headline in the local newspaper in Nov 2004.
Some test marketing has been done and some foreign visitors were absolutely astonished at what the property was valued at / the size of the mortgage. It would never have happened in their own countries, and they found it very interesting.

cashier said:

What was your friend's annual income at the time, I persume if he was psychiatrically unwell, he was on sickness Benefits.

Click to expand...

no he was not on sickness Benefits. He had been self employed for decades and I know he would not have been entitled to the dole : as he had assets I doubt if he would have been entitled to sickness benefit either. He was a hard worker all his life and unaccustomed to claiming anything off the government. I'll p.m you his annual income as verified by his accountants for the financial year during which he took out the mortgage if you want. Shouldn't the building society have checked to see if he had a proper job or business when he took out the mortgage?

Brendan Burgess said:

Hi honest

Can you give us some hard data on this?

Click to expand...

Hi Brendan, if ever you are in the west of Ireland I can arrange to have you shown the properties and original documents. Hard copies of valuations etc could be posted to you before then if you wanted.

Brendan Burgess said:

How much did he pay for the three houses? They were valued at €1.5m

Click to expand...

I wrote in the initial post it was valued at "approximately one and a half million - thats €17.000,000.00 an acre". He paid €1.410,000
plus stamp duty plus solicitors fees plus valuation fee etc for the property. The valuation valued the 3 cottages at a total of €1,410,000. The mortgage was for €1.450,000.

Brendan Burgess said:

He would have signed the mortgage application. He was doing "menial work". What income did he put in?

Click to expand...

I do not want to disclose that on a public forum, but suffice to say he was self employed, never employed anyone and certainly never had the means to repay the total mortgage repayments of approx 2.5 million out of after tax income over 20 years. I can p.m you some more specific details on this if you want. His income during the financial year in which he took out the mortgage was less than the average industrial wage, although it was higher in the preceding year, due to sale of old stock and giving up a business. Still not enough to remotely pay the mortgage.

Brendan Burgess said:

How much was the mortgage? Around €40k more than the valuation it seems .

Click to expand...

mortgage was 1,450,000. Property value was 1,410,000.

Brendan Burgess said:

Did he have a family home? How much was it worth and how much was his mortgage on that? .

Click to expand...

yes. The broker knew the area the house was in, and wrote in her writing on the buy to let application form it was worth 1 million ( and her eyes lit up! ). No mortgage on it, as it was bought many years previously. It was valued by the same valuer for the building soc. as security for the mortgage at €800,000.

Brendan Burgess said:

What other assets had he at the time, if any?

Click to expand...

He had some other assets, but would be unfair to discuss on public forum. They would however not have remotely given him the income to repay the mortgage repayments.

Brendan Burgess said:

Was there a guarantor for the loan? .

Click to expand...

no

Brendan Burgess said:

I can't find any mention of an estate agent is all this? Was there no estate agent involved? .

Click to expand...

there was, he sold the 3 houses. His duty was to the selller, to get the highest price possible.

Brendan Burgess said:

He was cold called by a mortgage broker? That is a bit unusual.

Click to expand...

It happened a few times from the same mortgage brokers. They can be quite persuasive and have an answer for everything, and can prey on peoples fears of not providing for the future. They were trying to sell a pension, give investment advice. Is that really unusual?

Brendan Burgess said:

Did he know her from before? "Surely someone apart from the young lady in the mortgage brokers " So he took his advice from a "young lady"

Click to expand...

The lady was articulate, a few years younger than the borrower and the borrower did not meet anyone else from the mortgage brokers in relation to the mortgage, and did not meet anyone from the building society, and was not in the building society offices at any stage when taking out the mortgage.

Brendan Burgess said:

What was the basis of his legal action against the solicitor?

Click to expand...

as that may or may not be ongoing I can find out more / p.m. about that if necessary. Thank you.

So he had a mortgage-free property and other assets.

He had some other assets, but would be unfair to discuss on public forum. They would however not have remotely given him the income to repay the mortgage repayments.

Click to expand...

That is not the point. He could sell the assets to repay the mortgage. You keep talking about €2.5m. The mortgage was for €1.45m secured on a property and on a family home worth €800k mortgage-free.

He had accounts showing a good income from the previous year.

He was a business-man of sorts and yet he bought three properties without seeing inside them.

I don't see that the Building Society has anything to answer for here.

Unless the broker forged or amended the application form, "the young lady" has nothing to answer for either.

This is simply someone speculating in property. They bought bad in the first place. The market collapsed. So they have lost their money. Now they are looking for a scapegoat.

Brendan

honest; Brendan asked you a question. How much was paid for the 3 cottages?.
How much was borrowed. How much was friend earning at the time. Did friend put up any other collateral as security other than the deposit. If so what was the value.
What other assets/ liabilities does your friend have?.

I still find it strange that your friend came across all of the following during the course of one transaction.

Friends that were shocked but done nothing about it. I think they could not stop him.
An estate agent and a mortgage valuer that had in or around the same outrageous crazy over the top valuation on the property.
Is it me that finds it strange that you would be getting a mortgage on what appears to me a derelict site that would require further development. Would have thought that all sides in the deal would look at a different type of financing structure.
The solicitor. I am pretty sure he would have made a few suggestions about getting an engineer to assess future planning possibilities etc.
The mortgage lender. I would have thought that you would have had to go up the steps a bit even in those times before you would get the sort of money that we could be talking about. I do not think that the receptionist was approving that type of money even then.
Was there any projections etc. from an Accountant.
Was there an Engineer engaged at any stage.
We need answers to all of above at a minimum if this is to remain a genuine post. No insult intended.

Brendan Burgess said:

He could sell the assets to repay the mortgage.

Click to expand...

He does not have the assets he once had, and used proceeds from these to repay a considerable percentage of the mortgage already, but there is a shortfall.

Brendan Burgess said:

You keep talking about €2.5m. The mortgage was for €1.45m secured on a property and on a family home worth €800k mortgage-free.

Click to expand...

He discovered after taking out the mortgage that total repayments were 2.5 million out of after tax income. Excluding his other living expenses over 20 years, He would have needed maybe, what, 5 million before tax to pay for that. How did the building society expect him to pay that in monthly repayments?

Brendan Burgess said:

He had accounts showing a good income from the previous year.

Click to expand...

Still not a good enough income to repay even a fraction of the mortgage.

Brendan Burgess said:

He was a business-man of sorts and yet he bought three properties without seeing inside them.

Click to expand...

he saw the inside of one. Yes he acknowledges he should have seen the inside of the others. Yet the valuer for the building society saw them, valued them and added on 3 utility rooms which were not there etc, and wrote a valuation which was unprecedented, bizarre and totally at variance with other valuations.

Brendan Burgess said:

I don't see that the Building Society has anything to answer for here.

Click to expand...

You think building societies who lend money to someone who has no ability to repay the loan has nothing to answer for? And how do you explain their extraordinary valuation?

Sorry some of the questions have been answered while I was doing my last post.
I would also make the point that it seems like a long time over 6 years to lodge a complaint with Regulator/ombudsman.
At this stage I am with Brendan on this.

Was the value based on the development potential of the site, did it have planning permission for shop units or apartments maybe? Who would rent a derelict building.