Personal Insolvency and Sale of Principal Private Residence

[44brendan]

This issue was previously raised by Brendan Burgess in his commentary on the proposed Bill.
I feel that it is essential to highlight the shortcomings of this Bill in the context of dealing appropriately with those in mortgage arrears whose financial situation is unsustainable and should be dealt with under this legislation.
A PIA is not binding without the support of 75% (in value) of the secured creditors. This means that where a mortgage is greater than 25% of borrowings the mortgage holder can veto the PIA. For the vast majority of mortgagors, their mortgage will exceed this figure.
From the perspective of a mortgage holder a PIA is not attractive. Currently they are in a strong negotiating position with clients in arrears as most of them will prioritise mortgage payments ahead of other creditors. I can see no benefits to a Bank/B.Soc in co-operating with a PIA. The likely outcome therefore is that the legislation will fail at the first hurdle. I.e. Bank's/ B/Soc's will not support a PIA and therefore those in most need of protection will be excluded from the process.
I see this as being a fundamental flaw in the proposed legislation that must be addressed before it is enacted and would be interested to hear opinions to the contrary.

 

[Brendan Burgess]

Hi 44

I find it hard to see the point of it.

If I was a mortgage lender, I would let it be known straight away "Do not bother submitting any PIAs which involve writing down the mortgage. If you have a proposal which involves surrender of the home and dealing with the shortfall - we will consider them. But we will consider them now anyway without the expense of a PIA. "

If the mortgage lender controls 75% of the debt, which they usually do, they would approve a PIA which involved no write down of the mortgage but a write down of the unsecured creditors. The unsecured creditors can veto this if they have 45% of the unsecured creditors.

It's just so messy that it will be unworkable.

There might be an unintended (?) consequence. If the borrowers know that the lender is going to reject the PIA and if the lenders know that they are going to have the hassle of a PIA, they might be more open to doing deals with borrowers to surrender unsustainable mortgages without the hassle of a PIA.

Brendan