Bank sold house 60% of its value and pursuing owner for balance

[Dermot]

A friend of mine who has fallen on hard times has had an Investment Property repossessed by Bank of Ireland and sold to a company called Targeted Investment Opportunities PLC.
The house was sold for 60% of its market value and this would have been easily achieved if anyone knew it was for sale.
Grant Thornton was the receiver.
A valuer called to the Tenant and shortly thereafter the owner was notified that the property was sold.
There was no advertising of the property in any way.
Not a person in the estate knew it was for sale and it would be safe to say that other than the tenant and the owner know it has been sold.
Very few properties come for sale in the estate and this house would be sought after.
This was a secret deal between the parties involved.
Another issue arising from this is that the owner is currently being pursued in the courts by Bank of Ireland for the balance due to them.
If they had marketed it at all the would have achieved over 60% more than they got for it and the owners liability would be less.
Do the Bank not have some duty of care to both the owner and shareholders to get the best price at the time for a property.
Is it legal to go after the owner for the full amount when it is blatantly obvious that the house was sold well under value because it did not get even €30 of advertising.
This is all factual and is not a rant or letting off steam.

 

[Brendan Burgess]

Why did he not agree a voluntary sale before Bank of Ireland appointed the receivers?

Was he paying the rent in full to Bank of Ireland? In most cases where banks appoint receivers, it's because they are not getting the rent. There are exceptions to this.

Having said that, it's odd to sell a house without advertising it in any way. Did they use an estate agent? It's quite possible that they sold a batch of houses to Target Investment Opportunities PLC at a discount. If so, then the customer should not have to pay the discount.

But the reality is that, in almost all cases, responsible investors can avoid a receiver being appointed.

Brendan

 

[Bronte]

The fact there was a sitting tenant might mean that the receivers were willing to take 60% just to get a buyer.

Dermot you've made a lot of claims there. Can you back them up.

Many many times on here we've mentioned it's better to go a voluntary sale as a) the owner will get the best price, b) you avoid receiver costs c) you avoid bank costs d) you avoid legal costs e) you avoid a bank/receiver taking the first buyer that comes their way - especially if the owner has money/income/assets, which seems to be the case here.

If you're broke the above doesn't matter.

 

[Bronte]

Having said that, it's odd to sell a house without advertising it in any way.

It wouldn't be odd if the receivers/bank had had it with the borrowers. Or if borrowers were with one of those land league types or if tenants were not paying any rent. Cheap to offload at 60% to a willing buyer in those circumstances.

I would be amazed if there weren't a lot more to this story. No rent handed over, borrower not engaging, tenant stopping receiver, tenant paying low rent to owner behind the receivers back.

It might have got more than 60% in reality, how does Dermot know the sale price? Maybe it's 60% knocked off the mortgage but a lot of the 'costs' were deducted first. Having seen these cases on here and from people I know those receivers don't come cheap.

 

[Gerard123]

Agree with other contributors, more to this than appears at first and more information and background required really to fully understand the situation. I googled Targeted Investment Opportunities PLC. Turns out that they are a large fund and linked to an investment firm Oaktree, appear very large. These guys are not buying one off houses as a rule.

I am guessing that the loan/mortgage was sold as part of a package and that the discount was 60% probably to the loan/mortgage balance. Receivers would not participate in a 'sham' sale process selling at 60% to the market value, they may or more likely would get sued. Receivers have responsibilities also.

At the same time, while easy for outsiders to indicate that people should engage with banks, frequently not as easy as it sounds to someone who is deeply in distress, is under huge pressure, is fearful, etc. Often it is very easy to bury ones head in the sand, fear takes over, etc. I have seen at first hand how otherwise intelligent people appear to get almost paralysed with fear in these situations and have no idea what to do and panic. So they do nothing. Never the right answer of course, they should engage, talk to advisors for example, etc. But in these situations I can completely understand and I have seen the impact of what these situations can do to people, who in all other situations are responsible investors.

Dermot - tell your friend to talk to an advisor who can help to sort the 'mess' out.

 

[Brendan Burgess]

I am guessing that the loan/mortgage was sold as part of a package and that the discount was 60% probably to the loan/mortgage balance. Receivers would not participate in a 'sham' sale process selling at 60% to the market value, they may or more likely would get sued. Receivers have responsibilities also.

A very good point and the most likely explanation. There was no specific price paid for this property.
It was part of a deal.

However, if that is the case, how should the shortfall be treated? Even if the mortgage holder were irresponsible, they should not have to pay a much bigger shortfall than had the property been sold individually.

Brendan

 

[Bronte]

However, if that is the case, how should the shortfall be treated? Even if the mortgage holder were irresponsible, they should not have to pay a much bigger shortfall than had the property been sold individually.

How does it matter what the bank sold the portfolio/properties to this new company/fund. All the matters is that a borrower owes X. House achieves Y. Borrower now owes X - Y = Z.

Isn't the whole point of these large sell offs that there is good and bad. And they will go after any borrower for the maximium shortfall where that borrower has a salary or assets.

 

[Gerard123]

Even if the mortgage holder were irresponsible, they should not have to pay a much bigger shortfall than had the property been sold individually. Brendan

You are kidding right Brendan? An irresponsible borrower should certainly be pursued. It depends on the level of irresponsibility of course as to what degree they should be pursued and how robustly of course.

If a borrower was renting out and withholding the rent, refusing to engage with the Bank, using delaying tactics, etc, all with a view to extracting as much cash as possible - no sympathy there. Pursue fully.

If there isn't proper follow up of amounts owing the whole system would collapse. Moral hazard, etc.

Of course a need to do deals, etc, and strong argument to say that they are not where they should be and huge reluctance on Banks/Financiers part.

However, I would strongly disagree with the view that just because a Bank sells a mortgage book at a discount that this entitles all borrowers to avail of a discount. There would be chaos. It's a case by case basis with individual borrowers, looking at facts and circumstances of each case.

 

[Andy836]

Is the property sale on the PPR? Or did the borrower just receive notice of a change in mortgage ownership?

 

[Dermot]

To Bronte. Yes absolutely can back up the claims otherwise I would not have "exposed" the forum to any claims. As a matter of fact the rental return is in excess of 10% so there would be no problem in achieving a higher price with a good tenant in situ from an investor. A private buyer would even give more for it.
Has the bank not a duty to its shareholders to achieve the market value of the property. As an investor I would have given a lot more for it but given the circumstances I could not contemplate purchasing same as I am a friend of the owner.
I know two people in the estate who are renting in the estate would give over 60% more and are in a position to do so.
This was not a discount on the mortgage that I am doing the calculations on. It is a discount on the market value.
No estate agent was involved and no advertising done as stated in my post.
He was paying over all he could until a "bull dog" in the bank took over his account and when my friend engaged a responsible advisor within a few days of the engagement "bulldog" was announcing that receivers were being appointed and it all went downhill rapidly after that.
I cannot understand the concept that if something is worth say €250k/ the mortgage outstanding is say €400k that the bank can sell it for €150k and that they can sail in to a court and say that they are owed €250k.
I believe that the banks should be able to repossess more quickly than is the case as I have consistently stated in previous posts. The problem in this instance is how it was done and I do not believe it to be isolated.
The property is listed on the property price register with a price.
A director of the Investment company is also a director of a firm who has done a lot of work for BoI.
I know receivers ought to have responsibilities but they did not act responsible in this instance for the reasons stated in OP.
This was an attractive property so why was it sold on the cheap without advertising it or using a local estate agent.
My friend is neither financially or mentally capable of contesting this.
I think that it is odd that a fund like Targeted Investments would be chasing after this type of property unless there was a phenomenal discount involved.
My primary purpose in posting this is to highlight something that may be going on and to debate it in a reasonable fashion.

 

[Brendan Burgess]

Hi Gerard - you misunderstand me.

If I owe the bank €150k and they sell a property for its market value of €100k, then should pursue me for the €50k shortfall.

My issue is that if it suits the bank to sell a package of properties at 60% of the loan value, so that my property gets only €90k, then they should not be allowed to pursue me for the full €60k. Just for the €50k.

Dermot says it was sold for 60% of its market value. People often claim that their property has been sold for below market value, but the bank or Receiver can justify a 10% or 20% discount. 60% is too much.

Brendan

 

[Dermot]

The property is on the PPR

 

[Sarenco]

Hi Dermot

In answer to your original question, yes, a receiver has a positive duty to a borrower to take reasonable steps to obtain the best price in the market where he exercises a power of sale. The fact that the relevant loan may have been acquired by the party appointing the receiver at a discount, either as part of a bundle of loans or otherwise, is not a relevant consideration in assessing whether or not a receiver has discharged his duty to a borrower.

For commercial property or large scale residential blocks, there will often be a discount associated with a receiver sale. This is because a receiver will offer no warranties to a buyer (as to planning, etc) but I doubt this fact would have a meaningful impact on price in the context of a one off house sale.

The next question, of course, is what meaningful steps your friend can take in the circumstances? Proving that any property was sold at a discount to its fair market value is rarely straightforward. However, in my opinion, your friend would be well advised to consult with a solicitor to assess the likely success of any action for breach of duty by the reciever and the possibility of obtaining a stay on the debt recovery proceedings pending the resolution of this action.

 

[Bronte]

He was paying over all he could until a "bull dog" in the bank took over his account


I cannot understand the concept that if something is worth say €250k/ the mortgage outstanding is say €400k that the bank can sell it for €150k and that they can sail in to a court and say that they are owed €250k.
.

I'd like if you could try and answer each of BB's questions in the second post in order to get a clearer picture.

What do you mean by paying over all he 'could' can you clarify please. Was he paying his mortgage in full. He clearly wasn't. Was he pocketing some or all of the rent. Was he paying dribs and drabs.

Are properties on the PPR in the estate for the same year for a much higher price.

You think the bank sold it for too little, but it might have been enough for them as they may be in a situation of dealing with many messes and are in a hurry to offload. Time is money to them. In those circumstances, with a problem owner, with goodness know what more to this story and with an inconvenient sitting tenant they may have actually achieved top price.

Why did it take until what appears to be the end of the road before your friend appointed an advisor.

You have skin in the game here as it's your friend. I am not attacking you in asking these questions, and I'm no fan of banks as you know, but I'm trying to be fair and understand what has happened.

In relation to your comment 'sail into court' looking for the balance. They are within their legal rights to seek the balance. And it looks like your friend must have the wherewithall to pay it off, so to me he was very very foolish not to engage earlier. I could be wrong. But this is a very risky business if your friend was trying to outsmart a bank. I have a relation at it myself, they think they're going to end up with a house for free and have paid nothing for years now.

 

[Bronte]

View attachment 834

My issue is that if it suits the bank to sell a package of properties at 60% of the loan value, so that my property gets only €90k, then they should not be allowed to pursue me for the full €60k. Just for the €50k.

Dermot says it was sold for 60% of its market value. People often claim that their property has been sold for below market value, but the bank or Receiver can justify a 10% or 20% discount. 60% is too much.

But contractually you are obliged to pay the amount owing after sale price plus costs. That's why it's so important to engage and come to a voluntary sale early on if possible. Otherwise it's bound to be the case that it will sell for less than what you yourself would sell it for. All these people in the chain of selling are in for a buck and a quick one.

Surely banks are allowed sell their property loans on at a discount if they so need to do so. And it is my understanding the Irish banks need to sort out their books by selling.

 

[Branz]

Dermot:
re

To Bronte. Yes absolutely can back up the claims

Is not the same as providing facts such as the items raised by BB and others
eg

Why did he not agree a voluntary sale before Bank of Ireland appointed the receivers?

Was he paying the rent in full to Bank of Ireland? In most cases where banks appoint receivers, it's because they are not getting the rent. There are exceptions to this.

Having said that, it's odd to sell a house without advertising it in any way. Did they use an estate agent? It's quite possible that they sold a batch of houses to Target Investment Opportunities PLC at a discount. If so, then the customer should not have to pay the discount.

But the reality is that, in almost all cases, responsible investors can avoid a receiver being appointed.

Before you engage a solicitor and more costs you had better get the facts sorted first as the money spent on legal advice will be wasted if you don't get the facts right:
lets start with some simple ones:
what were the arrears on all his debts to all his lenders just before the property was sold?
Over what period of time did these areas occur?
What other assets/income does he have now?

As to focusing on claims about corruption, sweet deals, duty of care etc, all requires a deep pocket and should not be the focus now.
My guess is that your friend just switched off, engaged with nobody, ignored all the obligatory paperwork, and thought it would just go away.

This happens I know but to build a decent case you need facts, not woolly, non focused discussions that might run well in the pub but get no progress.

 

[Descart]

Dermot,

Bronte has talked a lot of tripe on this thread too date, listen to BB and Sarenco whom have given more balanced replies to your questions.

Here is the settled Law relating to the appointment of receivers and their duties to the mortgagor ( borrower ) ( see cuckmere brick v mutual finance ). A receiver has a duty of care to act in good faith and in equity towards the mortgagor. The receiver must take reasonable steps to obtain the best proper price for the property at the time of sale. ( see Glatt v Sinclair ). The receiver is under a duty not to sacrifice the mortgagor interest recklessly, such as selling the house well under market value.

Now in relation to your case, if the bank instructed the receiver to sell the properties to a fund, this is called an off market sale and is relatively rare. Receivers need to be extra diligent and must take extra care to show the mortgagor the transparency of the transaction, that the property was adequately valued etc and that the receiver received the proper price for the property,reasonably attainable, at the time of sale. If, it is indeed the case that the bank instructed the receiver to sell the property as part of a portfolio to a fund, then I am afraid the bank has overtly interfered in the receivership and has expressed directly the progress of the receivership. ( see Silvern Properties LTD v RBS [2004] ) and now can be sued for any professional negligence claims for damage, together with the receiver. ( as the bank is no longer at arms length from the receiver ). This can also be used as a defence against the bank seeking summary judgement against your friend for the outstanding debt. ( contributory negligence )

My advice to you and your friend, is to look for other similar properties ( same amount of bedrooms, detached, etc. ) that were for sale in the immediately vicinity of your friends property, in and around the time of sale of the property by the receiver. If there is a marked difference in price and the receiver did not take the adequate steps necessary to achieve the proper market price for the property,( such as no marketing, appointment of estate agent etc ), then the margin test will apply to the property. ( see K/S Lincoln v CB Richard Ellis Hotels LTD [2010] EWH 1156 ) in which Justice Coulson held, that the margin that a valuation may fall within, without being negligent-

For a standard residential property the margin test is +/- 5%

If it be the case that the receiver sold outside the relatively tight margin test, then go to a good solicitor armed with these facts, he / she will take it from there. Please keep this thread up to date with any developments. Good luck !

 

[Dermot]

The reality for my friend is that he has no funds whatsoever or income and any other assets he has are in serious negative equity. No he did not have a rainy day fund out of the whole episode. He went into denial and would have been in terminal trouble before he brought himself to tell me. Yes he did not engage and neither did he obstruct them taking over the RIP's. The properties were there effectively for them to take over. When he did engage over the last two years in a mild mannered way he was not offered the facility of selling them in a voluntary manner. I know of quite an amount of sales that have been concluded by the voluntary manner with other banks but I personally am not aware of ones where
BoI are involved but that does not mean that they are not happening.
My friend engaged with the advisor almost two years ago and that achieved nothing whatsoever.
I cannot pretend that I know what it is like to be on your own and facing absolute ruin but it cannot be a nice place and not a place for clear thinking. So unless you have been there it is very difficult to really understand it. I have been in tough situations but could see a way out of it.
His situation deteriorated so rapidly during the crash that it all went out of control rapidly and because of the length of the crash he cannot recover.
As I said in my second post he does not have the means to contest it or the mental wherewithal to deal with it.
He was never trying to outsmart the bank and he does not have the means to pay them.
The tenant in the house in question is a brilliant tenant.
I raised the issue initially outlining the case in as balanced a manner as I could in order to highlight an issue that I think is wrong for the reasons set out in the OP. Yes there were questions but I do not want to identify the individual by giving any more specific answers as I have already narrowed down who it could be to a BoI "trawler".
I just do not believe that the Bank should be able to do what they done in the manner that they done it and be able to pursue the owner for what I term an "inflated" balance. I feel that the bank should be made take a hit in circumstances like this when the go to court and not having marketed it properly.
A mickey mouse add on Daft for one fee and a set fee to a local estate agent would have achieved a far higher price within a month. I believe I know what I am talking about when it comes to the value of this property.
The bigger question is how much of this is going on as I am sure this is not an isolated case. Why all the secrecy about selling any package of property. Why should there be certain groups made aware of assets that are for sale.
Thanks to all the contributors.
My friends situation is not redeemable and I just felt that this sale was so rotten that I would do a post on it

 

[Outsider]

Dermot,

Here is the settled Law relating to the appointment of receivers and their duties to the mortgagor ( borrower ) ( see cuckmere brick v mutual finance ). A receiver has a duty of care to act in good faith and in equity towards the mortgagor. The receiver must take reasonable steps to obtain the best proper price for the property at the time of sale. ( see Glatt v Sinclair ). The receiver is under a duty not to sacrifice the mortgagor interest recklessly, such as selling the house well under market value.

Now in relation to your case, if the bank instructed the receiver to sell the properties to a fund, this is called an off market sale and is relatively rare. Receivers need to be extra diligent and must take extra care to show the mortgagor the transparency of the transaction, that the property was adequately valued etc and that the receiver received the proper price for the property,reasonably attainable, at the time of sale. If, it is indeed the case that the bank instructed the receiver to sell the property as part of a portfolio to a fund, then I am afraid the bank has overtly interfered in the receivership and has expressed directly the progress of the receivership. ( see Silvern Properties LTD v RBS [2004] ) and now can be sued for any professional negligence claims for damage, together with the receiver. ( as the bank is no longer at arms length from the receiver ). This can also be used as a defence against the bank seeking summary judgement against your friend for the outstanding debt. ( contributory negligence )

 

[Outsider]

Descart
As someone who finds himself in a very similar predicament to the one outlined by Dermot above, your post is a very interesting one.

Our property was sold a year ago for 70-100k below what we believe could have been achieved. (I have no issue with the bank selling it from under us...we were in big arrears)

They did not advertise the property, nor did they place it with an estate agent.
When we realised that they had no intention of marketing the property we tried to engage with the receiver but they basically cut off communication with us...not taking calls, not replying to emails and not returning calls. They refused to engage with an interested buyer.

It was about three weeks after the sale before they told us that the property had been sold "as part of a portfolio" - presumably on the instructions of the bank - but no further details as to how the process was conducted have been forthcoming.

Could you please explain what you mean by this line (I'm afraid my legalese is a bit rusty) -
"I am afraid the bank has overtly interfered in the receivership and has expressed directly the progress of the receivership. ( see Silvern Properties LTD v RBS [2004]"

Thanks for your time on this matter.