BANKS are now fighting a rearguard action to prevent thousands of indebted customers from demanding write-offs on their mortgages.
Lenders were digging in after details emerged of a case in which a nurse had €152,000 written off. Banks said every attempt for a debt write-off would be assessed strictly on a case-by-case basis.
They issued their warning as the legal group New Beginning -- which secured the debt deal for Laura White -- said it had hundreds of similar cases on its books.
And it now expects thousands more homeowners to try to get debt deals.
That is because distressed mortgage holders are expected to flood banks in the coming weeks holding up the example of Ms White, effectively saying: "If she can do it, we can do it."
But the banks insist there will be no mass write-off. They were reacting to revelations about a deal done by Bank of Ireland's subsidiary ICS.
The lender “forgave” €152,000 of mortgage debt from the nurse who handed back the keys to her apartment. Bank of Ireland refused to comment on Ms White but insisted that every case where people seek a deal would be dealt with on its merits.
A spokesman for the Irish Banking Federation (IBF) insisted: “There is no change of policy and no change in practice. The Bank of Ireland case involved particular circumstances and was agreed in court.” The IBF claimed a “select number” of debt settlement deals were being agreed by lenders.
And Bank of Ireland said tiny numbers of homeowners were having debts wiped out. A spokeswoman said: “Mortgage debt forgiveness is not a resolution policy employed by Bank of Ireland. The outcome of this case is not forbearance applied by the bank but instead reflects the conclusion of an exhaustive debt recovery, repossession and court process.”
But New Beginning, the group of lawyers who secured the deal for Ms White, said this was the first of hundreds of deals they expect to do with banks. Overall, thousands of people could benefit from debt settlement deals, David Hall of New Beginning said.
More than 10,000 are expected to have to hand back the keys of their homes. This is because they are a year or more in arrears and regarded as unlikely to get on top of them. Most of them will end up owing money when the banks sell their homes.
Others may be able to stay in their homes and have some of the mortgage written down under new personal insolvency laws due to be published in the summer. The Personal Insolvency Bill was to be published this month, but it has now been put back to the end of June. The new laws will provide a legal framework for debt writedown deals. Taoiseach Enda Kenny yesterday said he hopes the issue will have progressed by the summer.
But senior counsel Ross Maguire of New Beginning claimed lobbying by banks was delaying the introduction of personal insolvency laws that would put a formal structure in place for debt settlement deals. He claimed issues around the Constitution, and banks' claims that their property rights would be infringed if mortgage debt was included in out-of-court debt settlement deals, was a “smoke screen”.