Back in the boom times I unfortunately took out a loan to buy a tractor and put up a new shed on the farm. All in all it came to €100,000. I was working part time as a plasterer in those days and although it was a stretch for me, I thought I had enough money to cover it. The bank did too.
As we all know the good times didn’t last and within six months of getting the loan I lost my job. To make matters worse things on the farming side went downhill too when my venture into calf and beef production turned out to be a disaster in the beef crisis of 2014 and lost a lot of money through that.
It all resulted in me being unable to meet my repayments for the last five years and I kind of buried my head in the sand about it all, hoping it would go away.
Last year I was told by my bank they had sold off a loan book of ‘underperforming’ loans and mine was among them. Now I’m worried that the new owners of the loan will tell me I must pay my debt or they’ll sell my farm. What can I do?
This is obviously a difficult and stressful situation for you. It seems that the bank have not taken steps as yet to call in the loan and you now need to consider your options but it appears you have time to do so. If there are significant arrears in respect of a debt, the bank will normally endeavour to recover it which may result in legal proceedings brought by the bank.
In the event that the debt becomes significant, the bank or financial institution may bring Court proceedings against you to recover the debt. The bank normally brings two types of proceedings:
1) Debt Claim
The former is where banks seek to recover the amount due to them and the latter is where they are seeking an Order for Possession of the mortgaged property with a view to selling the property.
It is advisable to deal at early stage and approach an accountant, financial advisor, or a personal insolvency practitioner to advise you with a view to putting a proposal to the bank.
The State has a service called MABs (Money Advice and Budgeting Service) which can assist here too. They will advise you as to what the best means are to restructuring the debt or the possibility of a write-down based on what you can afford to pay. Bank debt can arise out of a number of different scenarios. Mortgage debt would be the most common.
I note your loan was for purchasing a new tractor and building a new shed. The loan will normally have security and the bank often register a charge on the asset if it is land or property. It would be advisable that you or the professional advising you review the loan agreement and the legal title in respect of your farm to see if a charge has been registered.
The reason this is important is if a charge has been registered it give the bank an option to seek an order for possession and to potentially force a sale of the farm. If a charge has not been registered the bank can still seek to obtain a Judgment against you and they can apply to have a Judgement Mortgage registered on your land.
However this is worse-case scenario and I would recommended that the bank or financial institution are approached with a view to re-negotiating the debt. This would normally entail changing the repayment structure based on what you can afford to pay. A write-down of the debt may be considered by selling some assets with a view to paying off the debt at a reduced figure.
There are clear regulations set out by the Central Bank stating that the framework that lenders must use when dealing with borrowers and mortgage arrears. This is known as the mortgage arrears resolution process.
You will normally be required to provide the bank with a statement of means which sets out all your assets, income, liabilities, and expenses and will show your net worth. This assists the parties in ascertaining what a viable payment structure would be. It is important that you keep up-to-date financial records including copies of all receipts and invoices and engage an accountant to prepare financial accounts if this is necessary. If you do not do this, you are potentially in a considerably weaker position and it is important to keep all financial records as you may need to produce these in Court at a later stage. If you can show that efforts are being made to pay the debt.
There is a possibility to renegotiate with the bank after Court proceedings have been issued and it is advisable to do so and endeavour to reach an amicable solution. A Judge will not normally give an Order unless they believe there is no other option and a complete lack of engagement of cooperation from the borrower. Judges often stay Orders for a number of months in order that you have time to put your affairs in order and sell the property without the necessity of the bank doing so.
There is always a solution to bank debt and it is best to tackle it early on rather than leaving it to the last moment and it is recommended that you should get professional advice from a Solicitor, accountant, or personal insolvency practitioner to advise you and to assist in making an approach to the bank regarding restructuring the debt.
Karen Walsh, of Walsh & Partners, Solicitors, comes from a farming background and is a solicitor specialising in agricultural law, land law and renewable energy and is author of ‘Farming and the Law’ available from www.claruspress.ie. The firm also specialises in personal injuries, employment law and family law. She has offices in Dublin and Cork. For further information please contact 01-602000 or 021-4270200.
Disclaimer: While every care is taken to ensure accuracy of information contained in this article, Solicitor Karen Walsh does not accept responsibility for errors or omissions howsoever arising, and you should seek legal advice in relation to your particular circumstances at the earliest possible time.