A Dublin-based financial firm has been accused of "an unlawful breach" of a loan agreement for a multi-million euro Dublin 4 residence
Last month, the commercial division of the High Court heard that one lender, First Citizen Finance DAC, allegedly told a client: "Due to the Covid-19 pandemic, a 20pc reduction in value (of the loan) would be required in the current market." With borrowers left short of the necessary funds to complete property transactions agreed before March and vendors insisting that sales be completed on the due date, the big losers are prospective property owners who have paid hefty non-refundable deposits but now can't access funds to complete sales.
In a sworn affidavit, First Citizen Finance has been accused of "an unlawful breach" of its binding commitment to provide a multi-million euro loan for an "exceptional" high-end Dublin 4 residence. The finance company claims the pandemic has brought about "a material adverse change" to the circumstances of the loan.
This is not accepted by the buyer who has launched legal proceedings to enforce what he claims is the original agreement. It is believed other transactions are facing similar problems.
First Citizen Finance DAC managing director Chris Hanlon said he couldn't comment as the matter was before the courts.
In this case, the Commercial Court was told that the credit committee of First Citizen Finance had agreed to provide a €2.2m loan on a €2.95m property, according to an affidavit filed by Blucher Ltd. But it has now said it can only provide 75pc of the agreed loan, leaving the buyer with a huge financial shortfall and the loss of €300,000 in non-refundable deposits.
The prospective buyer says he will also lose the unique property which was sold for €5.6m in 2005/6 and cost a further €3m to renovate. He says the loan company acted "in bad faith in respect of its lending commitments" and the multi-million euro loan for the D4 property was approved after due diligence and months of discussion.
Sources say the "key argument" in the litigation will be whether or not the prospective buyer and the lender had concluded the deal to finance the house purchase.
One internal document said: "The tenant quality is likely to be strong" and the property had a rental value of €180,000 a year.
Yet in late March as lockdown gripped the country, the finance lender is accused of "resiling from this binding commitment" despite a company executive promising the prospective buyer, "I am fighting hard to get it done for you."
Later, the prospective buyer was told by executives at First Citizen Finance that "with recent events" and in the "current climate" the agreed loan approval had been downgraded. In an email, an executive added: "The bank instructed valuation has been received with a caveat, due to current Covid-19 pandemic, stating a 20pc reduction in the value would be required in the current market."
The dispute is now expected to go to a full hearing in the Commercial Court.
In April it emerged that bank valuers were putting valuations on some properties that are around 10pc lower than agreed sale prices between buyers and vendors. Brokers dubbed the gap in valuations the 'Covid caveat'.