Tuesday 25 October 2016

Evidence from the courts fails to support popular 'facts' behind repossessions

Karl Deeter

Published 03/11/2015 | 02:30

The bank most prone to have you in court is AIB, despite its ‘good guy’ image
The bank most prone to have you in court is AIB, despite its ‘good guy’ image

Every year since about 2009 there have been headlines warning of a "wave" or "tsunami" of repossessions, which is an argument backed by a rise in the arrears statistics, a rise in long-term arrears and now a rise in court cases being taken by the banks.

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Logically, it's a foregone conclusion, and one that has been cried from every rooftop by every vested interest in the debtor space. Empirically, it may not be so.

As part of a team, we observed 1,947 court cases from February of this year until the court recess in late July. What we evidenced through statistical analysis of court outcomes tells a different story.

The vast majority of people didn't bother showing up to their own court case - only 22pc attended, or one in five.

One damning aspect of the system is that people go into this largely unrepresented: a mere 3.5pc of people (68 cases) had a solicitor with them. This means that you can stand to lose your home with no professional legal advice available.

You can't be sentenced to a day in jail without legal representation being made available, but you can be made homeless without any at all.

This aside, people would need to be present to avail of this should such a scheme of assistance exist; it is a childish conclusion to believe that nobody goes because they just "bury their head in the sand".

The bank most prone to have you in court is AIB, despite its "good guy" image, whereas Bank of Ireland, which is often demonised, has about one-seventh the number of cases that AIB has.

Vulture funds and subprime are not predominant. The two leaders are the two state-supported lenders - AIB is in first place and second is PTSB.

The most likely to actually repossess your property is PTSB, followed by AIB. The good news is that only three of the borrowers engaging with the lender went on to lose their homes, proving that engagement helps, even when you can't pay.

We also found that single people are over-represented in terms of the number of cases that show up in court. This may be that a wage cut or job loss has a disproportionate effect on the single-person household or, in some cases, they leave the country.

What is certain is that when it comes to actually losing your home, single people constituted 50pc of all repossessions we documented. The policy response may be that we should require payment protection rather than life assurance for people taking out a mortgage on their own.

Another fact that has to be considered is whether repossession threats work. According to our figures, 157 of the 265 cases that were "struck out" of the legal process were because the person started to repay the loan. This is 8pc of all borrowers in the court process, so every 12th case perhaps needed this jolt to get them activated into paying again. Threats may be brutal, but they are also effective.

The other finding is that repossessions can't happen in a wave, because the system simply cannot bear it. Cases going in are filling the top of the funnel, and those getting repossessed come out of the end in a drip-like action.

Given that 84pc of cases are adjourned (often for six months and more at a time), it is simply not possible to add another 17,000 civil bills - the documents used to initiate a repossession - and think that the cases will close any time soon.

Besides that, of the 17,000 civil bills issued this year, not all are for mortgages. This is strongly suggested given that the average year of default in cases where repossession occurs is 2010 - five years ago - and the arrears are on average €56,000 of houses where a possession order is granted.

That constitutes the equivalent of about four years of free rent were the person a renter (a group who saw their monthly costs go up rather than down during the same time). How is that fair?

This may point towards something we couldn't measure, such as an inability for the self-employed to obtain social protection measures that PAYE workers can get, or the end of Mortgage Interest Supplement. It may be that the process moves so slowly that people are forced into a dragged-out solution in the wait for social housing.

One key error is that doing nothing creates knock-on problems. Vacant or abandoned homes constitute 15pc of the properties where the current status was revealed; equally, many "family homes" are more like a buy-to-let because 18.5pc had a status of "rented out" (where status was revealed).

There are 38,000 accounts in arrears of more than two years, which equates to about 30,000 properties. If 15pc of them are vacant or abandoned, that's 4,500 homes that could house about 13,500 people. They could be used to solve the homelessness crisis in the morning. Such houses should not be protected.

Equally, the vulnerable and unrepresented need protection and representation or they go in against some of the finest legal teams in the land, utterly unprepared for the level of expertise they will be up against.

Lastly, a repossession order is not the end - execution orders are - and many lenders use the threat to get further payments, which in turn come in. In short, the thinking that starting court cases equals "lost homes" is empirically unsound (at least for now).

If you scream "Dawn is upon us!" all night, you'll be right eventually, though in parts of the northern hemisphere in the dead of winter you can be wrong all day long too.

The debate to date often occurs in an absence of data. For this reason it seems to be the facts that have suffered the most.

The data collection was carried out by Seamus Coffey (UCC), Brendan Burgess (AskAboutMoney), Karl Deeter (Irish Mortgage Brokers) and researcher Simon Farrell. This article was written by Karl Deeter and represents his views only.

Irish Independent

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