As solicitors' professional indemnity insurers will know, a significant number of claims against solicitors are claims by financial institutions for breach of undertaking by the solicitor.
Since the financial crisis in Ireland, defaulting borrowers have exposed these breaches of undertakings. This, together with the fact that many financial institutions in Ireland have sold on bad loans to vulture funds* at a significant discount, has led to those vulture funds aggressively pursuing compensation claims against solicitors. Their motivation is clear: say they buy a €400,000 mortgage loan for 10% of its value; they could potentially gain over €360,000 if a court finds a solicitor's breach of undertaking led to the loss of a mortgage and awards them the full value of the loan plus interest, as compensation.
It is not surprising then that, in the context of the claims against solicitors, vulture funds refuse to disclose how much they paid for the loans on the basis that it is 'commercially sensitive'. To do so might lead a court to award a lesser amount.
For this reason, the recent announcement by the Minister for Justice and Equality, Charlie Flanagan, TD that the government has approved in principle the Courts and Land and Conveyancing Law Reform Bill 2018, may be of interest to solicitors' professional indemnity insurers. The purpose of the Bill is to provide further protections for homeowners in mortgage difficulties and it proposes the insertion of a new section in the Land and Conveyancing Law Reform Act 2013 to provide that the court, when considering an application for a possession order in certain circumstances shall have regard to the following factors:
- The overall proportionality of the application for a repossession order;
- the circumstances of those resident in the property
- the details of, and responses to, any proposals put forward by either party which would enable the borrower to remain in the property, including participation in a Government scheme for distressed mortgage holders; and
- where the mortgagee is not the original mortgagee that granted the loan or mortgage to the mortgagor, the amount paid for the purchase of the loan or mortgage by reference to the amount of debt outstanding in respect of the loan or mortgage (Our emphasis)
If vulture funds are required to disclose to the court the amount they paid for the loan in repossession proceedings, it may assist those of us who defend solicitors' breach of undertaking claims in seeking the same information and undermining the assertion that it is 'commercially sensitive'. This should assist in reducing the quantum of these claims.
* A vulture fund is a hedge fund, private equity fund or distressed debt fund, that invests in debt considered to be very weak or in default, known as distressed securities. Investors in the fund profit by buying debt at a discounted price on a secondary market and then using numerous methods to gain a larger amount than the purchasing price.