BANKS face being paid a fraction of what their properties are worth by NAMA in cases where developers used a loophole to avoid paying stamp duty on it, according to Finance Minister Brian Lenihan.
Developers who saved themselves 10% on stamp duty by failing to complete the legal transfer of land and property will have to pay it, Mr Lenihan said.
The loophole was used not just by developers for over a decade but also by the National Roads Authority and local authorities to avoid paying hundreds of millions of euro to the state.
The minister said he is considering implementing an amendment to close off the loophole which was shelved by Taoiseach Brian Cowen when he was finance minister, but there is no date for a decision on this yet.
But the practice could have implications for loans being taken over from NAMA because the developer may not have taken full legal title of the property being used as security against the loan.
In some instances, loans could be found to have no security and this would considerably reduce the amount NAMA would be willing to pay the bank for it, a department spokesperson said. Mr Lenihan said: “Each loan eligible for transfer to NAMA will be valued individually by NAMA, with the value placed on that loan taking account, inter alia, of the underlying security to the loan.
“In other words, any doubts or defects in the underlying security will affect the value placed on the loan by NAMA. Therefore developers are having to resolve these resting in contract issues”, he added.
In some cases developers have been declared bankrupt and will not have the money to clear the stamp duty liability. In such cases, the banks would have to sort out the security on the loan and would be paid a fraction of what it was worth, he added.
Mr Cowen in 2008 as the property boom was slowing commissioned a study into the impact of closing off the loophole and was told by Goodbody Economic Consultants that it could have a negative impact on the property market.
The report said that over 40% of all land transactions in the country were using the loophole and they estimated that in 2006 its use cost the Exchequer about €250 million. But the authors of the Goodbody report, having consulted developers and the Department of Finance, said insisting developers paid stamp duty would push up the price of property at a time when the market was becoming sensitive.
The scheme depends on the developer who purchased property or land not completing the final legal move by registering it and having the deal ‘resting on contract’ or by setting up ‘licensing’ arrangements where they agree to build on land without owning it.
Whoever purchased the property from the developer, such as individual house buyers, paid the stamp duty if they were eligible to do so.
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