One of the unspoken legacies of this recession will be the hundreds of people left paying full-term mortgages on properties they no longer own having been forced to sell at massive losses by the threat of repossession.
With the 12-month moratorium on repossessions agreed as part of the government's recapitalisation programme for the Bank of Ireland and AIB and political pressure generally, the prime lenders are reluctant to be seen opting to force people out of their homes. However, it's understood that many are opting to give customers in serious financial difficulty six months to sell their property despite the fact that they are almost certainly going to do so at a significant loss.
That this option avoids the repossession process is almost irrelevant to the mortgage holder because the end result is the same – the customer is left with a potentially huge outstanding balance to repay on the mortgage with no asset to show for it. The long-term effect is that they are unlikely to ever again be in a position to buy their own home thanks to a mortgage they continue to pay on a property they don't own.
The arrangement is essentially a private agreement between the lender and the customer and, as such, it is impossible to know just how many people are being forced down this route. However, industry sources believe that the number of houses being sold at a loss at the lenders' behest or being voluntarily surrendered to the banks and building societies far outweigh the number of possession orders being issued in the High Court.
Colin Daly, staff director with the Northside Community Law Centre says that the practice is obscuring a potentially major problem.
"It is very difficult to get a true and accurate picture of exactly how often this is occurring. There is no data on the number of properties that the banks and building societies have threatened to repossess but then end up giving people six months to sell. It is masking the true extent of the problem," he said.
The real cost of the practice was driven home by a report in The Drogheda Independent last week. Kevin and his girlfriend, both working at Lourdes Hospital, bought a three-bedroom house in a village close to Drogheda in February 2007 for €405,000 having secured a 100% mortgage with repayments totalling an €1,800 monthly. However, when his girlfriend lost her job, pressure mounted and the couple split up. Attempts to rent out their home failed and there were no takers for the property at the original price.
Eventually, the building society gave them an ultimatum – sell or face repossession proceedings. They eventually sold for €230,000 and will be paying off the €175,000 balance at €300 a month each for the next 35 years.
According to Kevin: "I've thought about skipping the country but then I could never come home. I've considered refusing to pay up but I'm in a state job and the building society could get an attachment on my earnings. There is no help and bank rescue package for people like us."
Crazy as it may sound, Kevin and his girlfriend probably did the right thing in selling their property at an enormous loss. By selling the property themselves they were able to maintain, at least, some control over the situation as the alternatives of voluntary surrender or repossession are even more financially punitive.
Voluntary surrender, also known as voluntary possession, is where a homeowner enters into an agreement with their lender whereby they take the house with the mortgage holder's consent and the lender then handles the sale of the property. It's understood that the majority of voluntary surrenders taking place at the moment involve people who bought at the height of the boom, borrowing 90%-plus of the property's value – and who now find themselves in serious negative equity. Once again, this is a private arrangement between the lender and mortgage holder and the prime lenders have been incredibly cagey about just how many voluntary surrenders are taking place.
Money Advice and Budgeting Service advisers are reporting a noticeable increase in the number of clients who have been considering voluntary surrender, says spokesman Michael Culloty.
"There are certainly a lot of people talking about it right now. People seem to see it as a panacea to all their problems where they can just walk away from the whole situation but that is not the case at all. We would advise anyone to seek independent legal advice if they are considering it," he said.
The Irish Bankers Federation pointed out that its members are statutorily obliged to assist borrowers as far as possible to manage their mortgage arrears before reaching the voluntary surrender stage but admitted that there may be instances where people enter into surrender arrangements unaware that they will be liable for outstanding balances.
As with a repossession or forced sale, voluntary surrender sees the mortgage holder remaining liable for any residual balance owed. It can also end up being incredibly expensive, according to Colin Daly of the Northside Community Law Centre.
"Our advice to people is that they should think very carefully before they set this in train. While voluntary surrender may seem like a quick and easy way to solve the problem of a mortgage gone into arrears, there are elements to consider before you go down that route.
"You will have to vacate the property and you are essentially handing over the carriage of the sale to the lender. They will negotiate solicitor and estate agent fees. You have no control over what those fees will be and they are added to your debt.
"It's also likely that a property sold by a lending institution will not achieve as high a price. It is better to put the house on the market yourself. That way, at least, you can possibly minimise your losses," he said.