Debt forgiveness: a phrase constantly in the news these days. Figures released by the Central Bank this week show an increase in the number of homeowners in mortgage arrears along with an increase in the number of people seeking to restructure their repayments. With another austere budget facing us later this year, it’s only a matter of time before thousands more join the ranks of those unable to meet their mortgage repayments.
In the last few days, Michael Noonan has pretty much ruled out an extensive debt forgiveness scheme for homeowners but he has indicated it is an issue that will be tackled. It remains to be seen how and when this will happen and in the meantime homeowners in difficulty don’t have time to wait for politicians to work out a solution to this ongoing problem. So let’s take a look at options that are available today.
Can I just hand my keys back to the bank and call it quits?
In a word, no. That’s not how mortgages or debt in general operates in Ireland. To put it simply, you can’t walk away from your mortgage. You are responsible for the full amount outstanding on your mortgage even when your house has fallen below this amount.
So what are my options if I can’t afford my repayments?
This is the situation facing many homeowners today. They can’t afford their repayments but they don’t have the option of selling their property because they owe more on their mortgage than the house is worth.
The worst thing you can do is to bury your head in the sand and hope it all goes away. Problems don’t solve themselves, they need action. If you do nothing, your situation is likely to get worse. If you are in arrears or think you will have difficulty making payments, you should contact your bank as soon as you can.
What are my rights?
Banks are obliged to follow statutory codes of conduct when dealing with people that are having difficulties paying their mortgages. These codes set out frameworks that lenders must use when dealing with borrowers in mortgage arrears or in pre-arrears. Lenders are required to deal with these cases sympathetically and positively, with the objective at all times of helping people to meet their mortgage obligations.
Your bank must contact you as soon as it becomes aware that your mortgage account is in arrears and they must also have a procedure in place for handling accounts which are in arrears.
It is important to be aware that if you continuously fall behind on repayments, and you ignore or don’t engage with your bank, the bank can start legal proceedings to recover the money lent to you and start proceedings to take back your house. Your bank cannot look for repossession of your home until every reasonable effort has been made to agree an alternative payment schedule.
What is an alternative payment schedule?
When you contact your bank, they will generally ask you to complete a financial review. Essentially, a financial review looks at what money you have coming in and what expenses you have going out. Both you and the bank need to determine what you can realistically afford to repay on a monthly basis. The bank may agree to restructure your loan in many ways. These may include:
- Extending the term of your mortgage, which will reduce the amount of your monthly repayments
- Changing your mortgage from capital and interest repayments to interest only
- Postponing all or part of your mortgage repayments for a certain time frame to ease the immediate financial pressure on you.
Your bank is obliged to try to find a reasonable solution and a way forward. If you are unsure about what your bank is proposing or how the change in terms and conditions will affect you, contact your solicitor as it is important you understand your rights and the consequences of any proposed changes to your mortgage repayments.
Here at Taylor Solicitors Cork, our experience has been that many banks are actively engaging with their customers to find workable solutions. But you need to be assertive. If it’s a choice between meeting a mortgage repayment and feeding your family, time is of the essence and you simply don’t have weeks to wait for a bank to process your paperwork. Take the lead. Contact your bank or solicitor before there is a problem and get working on a solution.
Money Advice and Budgeting Service (MABS) http://www.mabs.ie/
FLAC (the Free Legal Advice Centres) have published a useful set of guidelines on mortgage arrears (pdf)
Taylor Solicitors Cork