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Warning for borrowers in arrears: Don't let fear get in the way of saving your home

Experts say anxiety and a lack of information provided to people struggling with debt can lead them to making decisions that will worsen their situation.

Image: family home image via Shutterstock

THERE ARE 76,422 home mortgage accounts in arrears in Ireland.

Though these numbers are falling slightly every quarter, the number of people in arrears for more than a year is still over 41,000 and the average amounts for those in arrears over two years has risen from €66,000 to €74,000 in the Central Bank’s most recent review.

Experts say the lack of information and support provided to customers in financial difficulty can cause stress and worry that leads to a reluctance to engage in the process at all. By failing to take action early, mortgage holders can make their situations significantly worse and experts are encouraging anyone having trouble paying their debts to seek help.

‘Appealing in the dark’

Paul Joyce, an analyst at the Free Legal Advice Centre (Flac), said the Central Bank’s code of conduct on mortgage arrears has helped put in place a better system for dealing with defaulting, as it requires the lender to make contact with the borrow within a month of arrears occurring and engage in the resolution process.

As part of this process, a standard financial statement is sent to the borrower to fill out to assess whether alternative arrangements can be put in place. The code requires the bank to carry out an assessment of the full circumstances of the borrower, including personal circumstances, previous repayment history and unsecured debts like Credit Union loans.

This is where the difficulty can begin, Joyce said, as some people do not understand the importance of filling out this statement. Even when they do, the bank is only obliged to carry out an assessment, it is not obliged to offer a new arrangement.

“Assessments have not been as thorough as perhaps the code intends,” Joyce said. “Certainly in our experience, with those five criteria, I have seen correspondence from lenders saying ‘we’ve decided not to offer you an arrangement based on an assessment of your full circumstance under the following five headings’ – and nothing more, no other information.”

“Now, you have the right to appeal, but when asked for evidence of how they documented each of the alternative arrangements and how they considered them in light of those criteria, there is little information forthcoming – you’re appealing it in the dark.”

Appeal figures suggest few people choose to take that route anyway. Joyce said some customers may just assume their lender has properly assessed the situation and given them a fair response, others simply don’t know what to do next or begin to lose hope.

‘Topping up bills’

Further along in the process, issues arise if a borrower fails to meet the terms of the arrangement they made with the bank. According to the Central Bank, at the end of March this year, 87% of restructured primary home accounts were deemed to be meeting the terms of their arrangement – that means 13% were not.

The Central Bank said this inability to meet the terms of the arrangement “implies that the restructure agreement put in place may not have been suitable”.

Joyce said he has seen people exited from their arrangement because they did not meet a deadline by just a couple of days. “Suddenly you’re out of the process completely,” he said.

“Maybe for the lender, it’s a mathematical world where, if offered x, you deliver x, but you’ve grocery bills, utility bills and peaks and troughs occur, like a child getting sick and you’ve to go to a GP.

Because you just can’t deliver at that particular time, you’re out of the mortgage arrears resolution process (Marp). It seems to be the rules were drafted by people who don’t have financial problems, they see life as having logic and certainty all the time. When you go to the post office, you see people in working class areas – they don’t pay bills in full, they say ‘take 20 off that and 10 off that’ and keep their bills topped up. Most borrowers are genuine and don’t necessarily understand they can’t do that.

Joyce said there are a lot of misconceptions about people who default on their debts.

“There is an assumption that people who have lots of financial difficulties are pretty relaxed about it – that’s not our experience with it. When you get a letter among other letters, it can be hard to be able to isolate the significance of it. For people who are over-indebted, it’s constant stress and pressure.”

That may have caused a number of people to hide away in the hope that things would go away, which they generally don’t.

Arrears support units in banks can sometimes present a barrier for anxious customer too. “I’ve spoken to people who could never talk to the same person twice in the unit, so Kevin might seem reasonably nice on the phone and next time you call you look for Kevin, but he’s not available and you have to start all over again with someone else. There is a sense for a lot of people that the staff are programmed to operate in a certain way.”

Joyce said some people would be more likely to come forward if they were dealing face-to-face with people they already knew in their local branch.

And while most people will react quickly when they get a civil bill for possession in their door, others will panic, he said, and think “head in the sand.”

‘Two sides to every story’

Byron Jenkins, who runs The Hub Ireland, a free service offering support to anyone with mortgage issues, urges anyone facing court action from their lender to show their face in the courtroom.

“Effectively the rules say that if you don’t turn up on three occasions then a possession order can be put in place. This is classed as “on consent” and can not be appealed at a later date,” he said.

“If you turn up and put in an appearance and an affidavit the registrar cannot put a possession order in the house, it becomes a contested case and the registrar becomes the gatekeeper: she has to make sure the paperwork is in order before you go to the judge’s list.”

He advised borrowers to remember there are “two sides to every story and you get a chance to put your side of the story across”.

“Turning up allows you to tell the court what the bank has not done to help your situation. Did they offer you a different product, reduced payment or moratorium? If you defend your case and show the bank did not follow the Mabs (Money Advice and Budgeting Service) process, the registrar is quite within her powers to make an order in favour of the defendants.”

Joyce reminded borrowers that if they are brought to court, they can get an adjournment to go to a personal insolvency practitioner.

This can be done through the government’s Abhaile scheme, which has been in operation for a year. It also offers free financial and legal advice for people who are struggling. Over 4,000 households in mortgage arrears have received support from this service in the last 12 months.

Though this scheme has been a welcome support, Joyce said the Central Bank figures demonstrate a need for a more substantial intervention from the government. He suggested a mortgage rescheduling tribunal to hear appeals from borrowers who are unhappy with the outcome of the resolution process. It would have the power to impose its own decision on the parties, including write-down where appropriate.

But he said the most important thing for borrowers experiencing financial difficulties right now to remember is that “it’s never too late”.

If you’re having trouble paying your mortgage, you can contact the Money Advice and Budgeting Service (Mabs) on 0761 07 2000 or through its website.

Read: Banks in Ireland decline to give progress updates on their tracker scandal reviews>

More: Over 4,000 borrowers flock to voucher scheme in bid to save their homes>

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