In the Debt Recovery sector, 2017 may be looked back upon as a year that saw a decline in numbers,generally.
At the beginning of January 2017, the rate of interest on judgment debts was reduced from 8% to 2% following the Courts Act 1981 (Interest on Judgement Debts) Order 2016. While the 2% rate most likely does not vary dramatically from current deposit interest rates, creditors may well take the view that it offers insufficient compensation for having to wait, possibly for a long time, for payment of a lawful debt.
Early March 2017 saw a legislative attempt to reduce the time period for making a claim based on a contract down from six years, to just two years from the date that the cause of action arises. However, although the proposed private members' bill to amend the Statute of Limitations 1957 reached the second stage of the Irish legislature, or Oireachtas, it was defeated on 13 April 2017.
Creditors before the Courts
In a series of reviews of the volumes of debt recovery proceedings before the Courts over the past ten years, we have highlighted a continuing decline in creditor litigation and enforcement. The 2016 Courts Service Annual Report, published in July 2017, provided further evidence of this. Two particular statistics from this Report are notable:
- The number of default judgments marked in 2016 across the District, Circuit and High Courts showed an approximate 26% fall from 14,204 in 2015 to 10,475 in 2016. Even more notable, the 2016 figure represents an almost 80% drop on the equivalent 2010 figure.
- Just 3,695 instalment order applications were issued in 2016. This is where a creditor applies to the District Court for an order compelling the debtor to pay the judgment debt by fixed instalments. This represented a 32% decrease on the corresponding 2015 figure and a 46% drop on the equivalent 2014 one.
The lack of credit extended in both the banking and business sectors in Ireland over the recession years has been reflected in the drop off in litigation and enforcement activity by creditors. In addition, given that some nine years have passed since the global financial crisis began, it is to be expected that most potential creditor enforcement that it gave rise to has already been commenced. However, with credit having grown in most sectors of the improving Irish economy, this is also likely to lead to creditors enforcing their rights following any credit default in the medium term.
Mortgage arrears litigation
We have also pointed out that the major exception in terms of a decrease in creditor legal activity has been actions by lenders seeking possession of customers' Principal Dwelling Houses (PDH). There had been a dramatic increase in repossession applications in 2013 and 2014 after it was made compulsory for a secured creditor to issue proceedings in Ireland's Circuit Court, if the creditor sought an order for possession of a defaulting customer's PDH.
Although some 11,424 of these applications were issued in 2014, the equivalent figure for 2016 had fallen to just under 6,000. We expect that the equivalent 2017 figure will be just over 5,000. In addition, some 1,222 orders for possession of customers' PDHs were made in 2016, with 962 such orders being made by the Irish Courts in the first nine months of 2017. These figures reflect the fact that PDH mortgage litigation still accounts for a sizable volume of debt collection activity.
It is worth considering the Central Bank's mortgage arrears statistics which suggest that the numbers of arrears cases peaked in mid-to-late 2013.The number of accounts in arrears over 90 days hit 98,376 during that period. This had fallen by almost 50% to 50,688 by the end of September 2017. The overall number of mortgage accounts which had fallen into arrears had also dropped by a similar percentage.
Invariably, despite the uptick in the resolution of mortgage arrears cases demonstrated by these figures, repossessions in the remaining unresolved cases may have been inevitable. This may have been due to the fact that restructuring options such as term extensions, arrears capitalisations or split mortgages were tried in these cases and were, ultimately, unsuccessful.
This is particularly likely given the well-publicised sales of loan portfolios by some lenders in 2018. These portfolios are likely to be acquired by international investment funds, which tend not to extend the same level of forbearance on mortgage default that Irish based lenders may afford.
What's on the horizon for 2018?
Although volumes of creditor litigation and enforcement may decline generally into 2018, the year will most likely see a further rise in enforcement action by investment funds in Ireland. We also expect that the recent extension of credit into the improving domestic economy will also lead to some debtor default and creditor legal action later in the year.
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