We need to keep Ireland's land in Irish hands
Edmund Honohan. Picture: Moya Nolan
Do we need to know who owns the land of Ireland? Shouldn’t ownership be public knowledge? What would happen if the nation’s register of title was degraded by inaccuracies?
Here’s where we’re at: credit servicers are claiming ownership on the register. No credit servicer owns land: the clue is in the name — the servicer is providing a service to the owner of the credit secured on the land.
There’s a reason for these registered convenient untruths. We’ve come a long way from the old mutual building society matching short-term savers with long-term mortgagors.
Now, the banks flip new mortgage business by collateralising portfolios as security for the capital funding to be lent to house purchasers, and risk and ownership of the mortgages is transferred to new “shadow bank” investor owners.
But in the new international collateral shell game, the identity of the legal owner is lost, and this presents practical difficulties if a mortgage has to be foreclosed and the security realised. For obvious reasons, the 2009 act only provides for application for, and grant of, a court order for delivery of possession to the actual mortgagee, not to any agent or servicer.
The pragmatic solution is simple. The mortgage “originator”, whose name first appeared on the register as owner simply, even after the transfer of the asset, opts to misrepresent his title to the court. It comes to court and asserts title to the asset even though it is not listed as such in its balance sheet and no bad debt provisioning has been allowed for.
Judge Maurice Collins in the Supreme Court recently pointed out that "in no circumstances should errors in sworn evidence tendered in court be regarded as trivial or unimportant”.
OK, the bank is registered, but that is not the whole truth. He is on the register as owner. No need to come clean. His ownership is a “legal fiction”. That’ll do for now.
In the UK, a similar fix is used. Expert testimony to parliament describes how “the banks and the SPV special purpose vehicles have unlawfully agreed to keep the transaction concealed from the borrower and from HM Land Registry, thus giving the false appearance to the world that the banks still own the mortgages”.
And further, that “the contract of sale expressly provides that the SPV will not register the transfer at HM Land Registry”.
In the London Supreme Court in 2014, AIB Group (UK) lost a speculative claim for “equitable compensation” of £2.5m against a solicitor who made a £300k mistake.
One judge said: “There is something wrong with a state of the law which makes it necessary to create fairy tales.”
That’s not all. Credit servicers have been caught out trying to cheat the tax system arguing that, even though they are no longer owners of a portfolio they owned before securitisation, they should be treated as if they still are, even though the portfolio has been transferred to an SPV. The Revenue Commissioners put a stop to that scam.
Also, assignment deeds which are not stamped are not admissible in court as evidence. If these “global” deeds of transfer of mortgage assets claim the benefit of a special stamp duty exemption, the proofs that entitle them to that exemption incidentally also prove the deed is a full transfer of title to land. As such, change of ownership must be registered on the folio. That’s the deal.
If a query is raised, the servicer recently often deposes to the court that the parties have agreed a workaround which is to designate him as “holder of legal title”, which is actually a makey-up formula with no legal standing in property law.
Another formula used by servicers is to come into court saying they now hold the security under a trust. They say the “beneficial” owner has agreed that the servicer would hold the legal title for the time being. Fair enough.
In the old days, a mortgagee’s agent could not foreclose or sell. Foreclosure is gone, but the principle is still the same. The servicer/agent cannot seek a court order for possession, or appoint a receiver. The true mortgagee must step out of the shadow and prove his case.
The legal/beneficial issue can be illustrated by thinking of the beneficial interest as the sim card without which the legal mobile phone is inert. The servicer/trustee cannot operate without the involvement of the beneficial sim card.
Even the use of the term “trust” is a little disingenuous. Trusts are now merely “transactional”, designed to produce a desired result of maximum profit extraction or tax “neutrality”. Ethics? It’s all in the small print nowadays.
EU law is clear on to whom the asset belongs after securitisation, and confirms any counterclaim a borrower might have had against his original lender can now proceed against the credit purchaser SPV and not against the credit servicer, but what if the identity of the credit purchaser has been conveniently concealed?
If we are at the dawn of a new era of “investible credit” markets covering not just mortgages, but also personal loans, credit card debt, car debt etc, all collateralised through securitisation, with all data digitised, perhaps even ultimately compressed into a hash on a blockchain, there will be no public register of the ownership of the debt as definitive proof.
And no deception by simple failure to update, or any legal fiction as a shortcut.
One judge put it rather well, criticising use of statutory legal fictions involving “the difficulty of working out an enactment that a thing shall be deemed to be what it is not”. For title to land in Ireland to pass under such a fiction is to invite off-market private sales putting Irish land security at risk. Simply put, we don’t know who’s buying.
If we want to keep our land in Irish sovereign hands, we need to require mortgagees, true owners of the mortgage charges, to conduct all land receivership and repossession sales in the open market as they do elsewhere in Europe.
Perhaps the State should have first refusal. Use of the CPO would be justified in the case of strategic land tracts essential to food security, critical climate challenges, and to prevent hoarding of development land.
- Edmund Honohan is former master of the High Court
