The High Court has refused to approve a Personal Insolvency Arrangement (PIA) under which a pensioner would be making mortgage repayments on her home until she was aged 98.

In what is regarded as an important test case, Mr Justice Mark Sanfey said 69-year-old Ann Fennell, who owes Ulster Bank some €72,500, would not be reasonably likely to be able to comply with the terms of the proposed PIA.

The bank opposed the PIA, which proposed to restructure the length of her mortgage repayments to 348 months from the coming into effect of the arrangement.

If the proposal had been approved, Ms Fennell would have been making monthly mortgage repayments until she was aged 98.

She had entered into an insolvency arrangement over her difficulties in repaying a loan to the bank.

In his judgment, Mr Justice Sanfey, noting the bank’s opposition, was satisfied such an arrangement was not permissible where the term of the restructured loan is likely to exceed the lifespan of the debtor.

He was also not satisfied Ms Fennell had demonstrated the payments under the proposed PIA were affordable or sustainable.

Mr Justice Sanfey said his judgment may provide clarity concerning whether arrangements which provide for an extension of mortgage term to a point where the debtor may not be alive can be permitted by the courts.

Dozens of cases

This issue had arisen, not just in this case, but apparently in dozens of other cases pending before the courts.

The judge said the only way such an arrangement could be approved by a court was if the personal insolvency legislation was amended.

The primary aim of restructuring a mortgage term beyond the debtor’s lifetime is to ensure affordability of the repayments and to secure the continued residence of the debtor in their family home, he said.

The judge suggested a discussion among affected parties to see whether a solution to the type of problem faced by debtors such as Ms Fennell should occur.

Under the proposed PIA, Ms Fennell would have retained her four-bedroom home at Lyradane Avenue, Woodview Park, Limerick, worth an estimated €180,000.

The PIA proposed she would make mortgage repayments of €57.47 for the first 24 months, rising to €238 per month from month 25 onwards until the bank debt was settled.

There would be no writedown of her debt, and should she die before the debt had been paid, the PIA proposed that her estate, following the sale of her home, would pay the outstanding balance.

The matter went to the High Court after the Circuit Court refused to approve Ms Fennell’s PIA.

Her personal insolvency practitioner, Maurice Lenihan, represented in the appeal by Keith Farry BL, urged the court to approve the PIA. He argued the arrangement was workable, and said Ms Fennell would receive financial assistance to fund the PIA from her adult children.

The bank would receive payments totalling some €83,000 under the proposed PIA, it was argued.

Ulster Bank, represented by Andrew Fitzpatrick SC and Niall Ó hUiginn BL, opposed the PIA on grounds including it was unsustainable.

Costs

The costs of allowing Ms Fennell remain in her home, where she lives alone, were disproportionately large, and the bank cannot be expected to accept PIAs that amount to “lifetime mortgages”, it was argued.

The court heard, in an attempt to resolve her debt, the bank offered Ms Fennell €15,000 to assist with relocation costs, on top of the €108,000 equity she has in the property, if she left her home.

If that offer was accepted, the bank proposed to sell the house. She refused that offer.

The court heard, if Ms Fennell were to leave her home, the cost of rent, supplemented by social housing payments, would be more than the cost of the proposed mortgage repayments.

In his decision, the judge said he was not approving the PIA and dismissed the appeal, but urged the parties to continue to seek a workable resolution to resolve matters.

Noting the willingness of Ms Fennell’s children to help their mother over her indebtedness, he hoped their goodwill could be used to generate concrete evidence-based proposals to enable her to stay in her home, where she is “settled happily and which holds so many memories for her”.

The case will return before the court on a later date for final orders.