Law reformers examining foreclosure regime

| 03/12/2018 | 59 Comments

Cayman News Service(CNS): The Law Reform Commission has circulated a new discussion paper seeking public input about the need, or not, for new legislation regarding the issue of home loans and foreclosures. The commission said there had been a heightened level of public concern about the number of such procedures, the process by which banks seize people’s homes and the hardships it causes. The committee has found that the regime in Cayman compares well with other jurisdictions and the number of foreclosures has fallen recently, but it has also identified a number of weaknesses in the system. 

The paper entitled, “The Enforcement Of Mortgage-type Security Over Real Estate: Is Reform Of The Law Necessary?”, is a first step towards creating a new legal regime and was a response to a referral by the attorney general requesting a review to consider whether it is necessary to reform the law relating to the enforcement of mortgage-type securities over land and, in particular, over residential properties.

The document reviews a number of media reports over the last few years about the number of residential ‘foreclosures’ and the problems it causes, as well as the impact of the process on families.

The paper points out that banks claim to follow a code of conduct when taking homes from people who have defaulted on their home loan but that code is “entirely voluntary, and non-compliance with the Code gives rise to no legal recourse, unless that non-compliance also involves a breach
of the law”, the reformers have noted.

The commission reproduced figures from CIMA over the last few years indicating a drop from just under 100 repossessions of homes by banks in 2016 down to around 60 last year, as the general economic situation for some has improved. But many people distrust the figures provided by the banks to CIMA and the public perception is that there are a significant number of families losing homes on a regular basis and stories about individual repossessions are still common.

One of the primary considerations for the Law Reform Commission during this exercise is to encourage comment on the existing law and consideration of whether it strikes a balance between the interests of lenders and borrowers.

“In so doing, it would be naïve to assume that the respective bargaining powers of lender and borrower, either at the creation of the obligation, or the enforcement of the security, are equal. Most evidently, borrowers faced with an enforcement sale of their residence will hardly have the financial means to enforce their legal rights. This Discussion Paper will therefore examine whether there are means by which the burden of protection of borrowers’ rights might be lessened,” the paper notes.

This has been one of the major complaints from people who have lost their homes. Someone struggling with arrears on a home loan is not going to be in a position to employ a lawyer or financial expert to fight the bank or renegotiate the loan.

With persistent complaints that the banks are acting in their own self-interest by undervaluing homes, moving far too quickly to seize residential property and in many cases ignoring the equity people have in defaulted home loans, there are concerns that the banks are taking the easy way out of selling properties for the price of an outstanding loan rather than trying to help people repackage their loans.

The commission said it will consider whether there should be legislation which deals specifically with security over residential property, unlike the existing legislation which makes no distinction between security registered over residential properties and that registered over properties used for other purposes.

The commissioners have come up with around 20 questions for people to consider and around a dozen specific areas relating to how the system currently works, and one of the main areas is the power of sale. The commission acknowledges that this area gives rise to the most disputes between lenders and borrowers, and where any reform of the law will likely have the greatest impact.

In the discussion document the commission concludes that while the Cayman Islands appears to be largely in sync with other places, there are things that be well worth adopting and areas of the law that need clarifying. Reforms could be made by amendment of existing laws or by adopting rules and regulations under such laws, the commissioners said.

“Given the specific concerns raised regarding the enforcement of these powers where they affect residential property, consideration should be given to whether the reforms should be introduced in separate legislation dealing only with enforcement procedures affecting residential property,” the commission stated. “It is hoped that the consultation will stimulate sufficient discussion and participation which may guide the Commission through subsequent stages of the reform process.”

Stakeholders and members of the general public are invited to generally comment on the issues identified in the discussion paper and, in particular, to submit their views on the questions and reform options presented for discussion.

The paper may be viewed here or a copy can be collected from the Office of the Commission.

Submissions should be forwarded no later than 30 April, 2019 to the Director of the Law Reform Commission, 4th Floor Government Administration Building, Portfolio of Legal Affairs, 133 Elgin Avenue, George Town, Grand Cayman, P.O. Box 136, Grand Cayman KY1-9000 either electronically to jose.griffith@gov.ky or in writing, by post or hand delivered.

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  1. Anonymous says:

    can I ask what is the point of this story? I mean, have mortgage. Pay mortgage. Don’t pay mortgage and lose home, car whatever you mortgaged. It’s really that simple. What is government going to do about it?

    Nothing. And they shouldn’t do anything about it.
    Stay within your means. It’s really simple. And yes, sometimes that’s not enough. But there is no guarantee in life.

    sadly this is true.

  2. Anonymous says:

    This is easily fixed with disability insurance or any other kind of insurance that covers you when you are unemployed. Is that something that is available in Cayman? It is available in other countries.

    • Anonymous says:

      But the moaners who want to default and keep “their” homes are generally the sort that overstretch when buying, often out of greed, ego and a lack of prudence, so they would not invest in such sensible products anyway. if they had prudent savings in reserve then they would not have problems honoring their debts.

      • Anonymous says:

        I’m thinking this should be made mandatory. As life insurance is made mandatory when taking out a loan. So it is not an option for the overstretched. I do believe most of these mortgage defaults stem from divorces, separation, illness or job loss. The others should not have been granted the loan from onset.

        • Anonymous says:

          As someone who lost their job due to age and being replaced by another half their age, I can speak to this. My home was paid on for over 21 years and was sold (TO AN EMPLOYEE OF THE BANK) for less than HALF the apprised value!

          The heartless propensity for “retiring” people who are not disabled by age 55-56 is a national disgrace. The mortgage was planned so as to be paid off just 4 months before reaching age 60. Being unemployed and unable to find employment at age 56, I spent my entire retirement nest egg trying to keep the house. Now I am 62, unemployed still, totally broke and indigent and relying on NAU for my survival.

          This is what the mentality of disposable older people results in. My plight is not uncommon in Cayman today, as I am familiar with at least a half dozen others who have found themselves in the same exact circumstances. I see them waiting endless hours in the queue at NAU to try to get medical and dental issues dealt with, where CINICO does not cover the actual costs.

          Due to not being fully vested in a pension (that did not start until 1999), it is difficult to survive in Cayman on less than $300/month in income! Abject poverty among many older people in this society is a national travesty.

          • Anonymous says:

            The question might be asked: “how could mortgage reform have helped your situation or others in your circumstance?” You speaks of unfortunate and difficult financial and planning issues befalling you resulting in the inability to hold on to certain possessions and an accustomed way of life. Should the lender that agreed to help you initially with your future plans be made to suffer without payments when things didn’t go well for you?
            In fact I believe that the bank was hoping that things would be ok and that you would have remained employed so that interest would be paid and they would never be saddled with non payment of the loan, the work of having to sell your home and seeing you without a place of your own. They also have their employees and bills to pay so no one wants that.
            Despite anything having an appraised value, true value is what the market is willing to pay and in bad times, not only are prices reduced but buyers are choosy and also low on cash themselves. There are also fewer buyers and lenders.
            Homes need repairs and often have other neglected payments of utilities or fees and years of lack of maintenance. This all comes to the forefront in foreclosure proceedings.
            There is a substantial cost involved to sell these homes and not surprisingly, it is the equity of the purchaser and not the bank that suffers as ‘creditors are paid first’. And why shouldn’t they?? They make a business out of taking the risk along with buyers ambitions which sometimes go sour.
            If you were a commercial lender wouldn’t you want it that way?
            I feel sorry for your circumstances but my feeling is that renting is a great and less risky option that’s always out there and home lenders should not be demonized for trying to recoup what little they can when borrowers cant afford to pay.
            I agree though that homeowners could be offered prudent advice by financial personnel that may be able to address early problems and work to get the home sold by the individual or advise on stopping mortgage payments till some equity is recovered and than leaving the home to the bank.

  3. Anonymous says:

    There is no need to pander to the moaning of those that fail to pay their debts. Only the honest and moral homeowners suffer more from that idiocy. Make it easier for banks to possess the houses of defaulters not harder.

  4. Anonymous says:

    Maybe we should let the government know how we feel and start protesting the way that the French do? The protesters in Paris just suspended the governments plans to increase the tax on fuel.

    It’s time to stand up for ourselves Cayman or we will be walked over like doormats forever.

  5. Anonymous says:

    I work in a profession which is involved but its neither for the bank nor the realtor.

    I know for a fact that most banks would rather assist the mortgage holder and help them through their situation rather than foreclose. Some banks do give more leeway than others.
    Someone has mentioned it here before, but in most cases, unfortunately the mortgage holder has experienced some misfortune whether it be health, job loss or divorce. Unfortunately, that’s life.

    I do think however that certain banks are lending to people who can’t afford it and are offering mortgages that require minimal down payments. I think people need to have some skin in the game.

    I also think some people simply don’t comprehend what they are signing and seem to think that once they sign on the dotted line, they own the house outright. They don’t own jack until the last payment is complete.

    I think the people taking to social media just need someone to blame because they are hurting. It’s easy to blame the banks. The bottom line is, pay your mortgage first. If circumstances change dramatically, speak to your loans officer.

    • Anonymous says:

      Spot on! Banks do not want to repossess/foreclose, their regulators and shareholders do not want that – but their depositors do want their CASH back when they need it, and for that to happen the banks must collect back their loans made, mainly, with those deposits. That is why banks, which take deposits, can only lend a relatively small percentage of deposits as unsecured loans. A would be borrower offers security in order to get a better rate and a larger sum than they could get on an unsecured loan. If you are not willing to lose your security, borrow only unsecured – for the security is no good unless the bank can convert it to cash, to repay depositors, when the borrower stops repaying the loan. A mortgage on a house has traditionally been seen as good security because borrowers used to take every precaution and make every effort to repay loans so secured. Where do these particular people now get the idea they can give a bank a mortgage on a house and not risk losing their house if they do not repay the debt?
      But as writer 1:31 pm also intimates, some banks also seem reckless now in lending at risky ratios. But it also cannot be ignored that such sub-prime lending is partly because of pressure from governments to make ‘easy’ loans available to voters (and the world has still not recovered from the sub-prime lending binge the US went on 10+ years ago). That should be a bigger concern. Anyone with any knowledge of the subject knows it is a lot easier and more profitable for the banks to just collect back the loan repayments than deal with the complex and risky process of foreclosing.

    • anon says:

      Excellent observations. Couple this with the social pressure of having a nice house and car, adds to the push for people to go above their means to “impress” friends and make mother and father proud that their child can jump on the debt bandwagon.

      We live in a debt culture. Everyone one wants a fancy car and big house so they can impress, while only filling up with 7 dollars and doing water diets because of big mortgages.

      I believe the culture must re/learn financial discipline while exercising humbleness.

      The banks are doing what they need to do to keep doors open. They are not your friend.They lend you money with interest.

  6. Anonymous says:

    How come nobody ever talks about the 1% stamp duty on the mortgage value that the government takes. Or the fees the government charges to register your mortgage, or the fees they charge to release your mortgage once it is paid. And lets not forget the stamp duty…

    By the time you pay all the fees, there is nothing left to put down as equity and your mortgage requirements increase as a result.

    Every homeowner in this country is immediately underwater the minute they take ownership.

    No lets focus on the banks…they are so evil.

  7. Anonymous says:

    https://www.caymancompass.com/2018/01/01/judge-affirms-banks-rights-in-foreclosure-case/
    The most publicized case of foreclosure was the matter last year which is detailed in this link. The facts when presented at court differed enormously to the half-truths and lies that some people were happy to spread on social media. The ruling in full is online and shows just how far banks will go to avoid foreclosing which really is a last resort.

    • land crab says:

      12.11pm Your comment should be required reading for all Caymanian mortgagors as it blows their complaints out of the water..

  8. Anonymous says:

    Be careful you don’t get what you asked for!

    Some would call me an old fart, but in 1990 after a 15-year relationship with CNB that included a 5-year car loan at 18% I decided that it was time to build my own house and went to inquire about a mortgage. They informed me that they had no money to lend for mortgages.

    Every bank that I went to in 1990 gave me the same story, many only had US$ to lend short-term, until finally I was able to convince Barclays to give me money for a mortgage at 13% interest over 20 years, and I was grateful to them.

    When interest rates finally dropped by 1% after a couple of years I continued to make the same payments that I had been suffering under.

    My mortgage is now paid off and I will never borrow money from a bank again, even if they would lend it to me, but I can’t understand how some people think that they can demand mortgages from lending institutions and also dictate the terms under which they will repay the money.

  9. Anonymous says:

    maybe people should just live within their means?

    • Anonymous says:

      I think so too. That, and banks not issue sub-prime mortgages to those that can’t afford it. I saw a video on YouTube that illustrates the bank’s shenanigans (it may be in a US context, but the principle is the same). Link below…

      https://www.youtube.com/watch?v=bx_LWm6_6tA

    • Debt collector says:

      Every default I have seen has come about as a result of a sudden reduction in means, almost always job loss. No matter how hard you work and how successful you are, you can’t guarantee that over a 20-30 year period, some set of circumstances won’t result in you being unemployed. It’s not entirely within your control. So the question of whether borrowers should have more legal protection allowing them to ride out a rough period like that is not an illegitimate one. What matters is the balance between the interests of the borrower and the bank. Banks may have a voluntary code they follow that tries to improve this currently lopsided balance in their favour, but when they do instruct me to force a sale, it is very easy to do, so easy that I will not buy property myself until there is meaningful reform. If the next generation is going to own and keep property long-term, it is absolutely necessary.

  10. Anonymous says:

    The issues are broad, but generally if you tighten the ability to foreclose you drive up costs, or reduce the number of banks willing to lend to higher risk people. I have seen some personal loans going through the courts being charged 17%, its not really rocket science to know that the borrower will get into trouble, yet people still borrow. I would be more of an advocate for a citizens advice bureau paid for by the lending banks, a couple of semi-retired lenders can staff it, nothing extravagant. 1) the banks will get better informed borrowers, 2) people wanting to borrow wouldn’t sign a 17% loan, and 3) hopefully it will reduce the number of foreclosures as issues can be dealt with, loans can be renegotiated in times of hardship, and issues headed off before foreclosure ensues…oh and world peace…OK maybe a little optimistic, but better than what we have now…which is nothing,

  11. John Lin says:

    When you lend money you’re an angel. When you ask for it back you’re the devil.

    Foreclosure law in Cayman differs from the USA in that the lender is only entitled to what they are owed. Anything extra goes to the homeowner. Thus they have no incentive to “take the house ” from the homeowner.

    People who are in default of their loan typically have not been taking care of their homes and there is substantial deferred maintenance. Often including broken windows, termites and leaking roofs. They are worth less than well maintained homes.

    Furthermore no lender rushes to foreclosure without making many efforts to work with the defaulting borrower. They are usually many months behind on their loans.

    • Anonymous says:

      you say :”Foreclosure law in Cayman differs from the USA in that the lender is only entitled to what they are owed. Anything extra goes to the homeowner”. It’s exactly the same here, do you honestly think the bank can keep more than it is owed?

  12. Anonymous says:

    You’ve heard it here first: this review will go nowhere. As usual, the LRC, with its colonial QCs and massive staff and budget, is picking up on it because it’s a fashionable hot potato. But the legislators KNOW that the banks won’t tolerate any curb on their power to sell a property whose owner is in arrears (not “foreclose”, CNS; Cayman doesn’t allow foreclosure).

    CNS: This is a direct quote from the LRC discussion paper in “Background”: The request followed a heightened level of public comment, and concern, regarding the number of such procedures, colloquially referred to as ‘foreclosures’, in the recent past.

    Any legislative change in that direction will have one effect: the banks will become increasingly reluctant to lend any on the security of domestic property. Result? Bang goes the housing market here. Why should banks lend they can’t be assured of realizing their security if their borrower can’t or won’t repay his/her debt? They’re businesses, not welfare providers.

    At most, the banks might agree to making it clearer to borrowers from the outset what the consequences of non payment are. But how will that work? Five pages of bumph that borrowers will say they’ve read to get their loan, but won’t have? Enforced independent legal advice, pushing up the cost of buying still further?

    Truth is, mortgage borrowers know what they’re getting into from day one: fail to repay your loan, and sooner or later your house will be sold from under you, regardless of the rights and wrongs of your own personal story. That’s how it’s always been and always will be. Everywhere.

    Cayman should be no exception, unless our politicians are somehow claiming that their constituents’ behavior is such that they deserve more protection than other borrowers the world over. And if that’s so, then perhaps Government should step in and pay the arrears. No? Thought not.

    • Anonymous says:

      The fact that the LRC used the term, even colloquially, means that they are worryingly ignorant on the subject.

  13. Anonymous says:

    Finally a useful publication from the LRC. The paper is quite detailed in its legal analysis..it is now a political decision.

  14. land crab says:

    Perhaps our Caymanian borrowers should spend less on expensive cars, boats, shopping trips to MIami, girlfriends etc, etc and get their priorities right. The banks are not Social Services.

    • Anonymous says:

      Hard times happen to the best of people. You sound like a trust fund baby that doesn’t know the feeling of debt.

      • Anonymous says:

        Yes hard times happen, and that is precisely the reason to ensure you not only take on debt that you can afford, but one that also leaves you a sizable cushion should hard times fall. Most people do not take that into account and get into trouble at the first sign of loss of income.
        Also I can tell you for a fact most foreclosures are not a result of hard times but simply poor budgeting and money management.

      • Anonymous says:

        Rubbish. Your housing should be the top priority. Not a second car. Not a vacation. Not the hairdresser. Not eating out/take-out. Not happy hour. Etc. Etc.

  15. Anonymous says:

    What goes on here amongst the banks is called collusion, cartel, or outright corruption in other advanced countries. I guess that’s the key word….advanced. Sigh.

    • Anonymous says:

      wrong…every time a foreclosure has gone to court…the borrower has been judged to be at fault. every time.

  16. Anonymous says:

    Has the LRC ever had a single law it has drafted enacted in its 13-year history?

    Serious question.

  17. Unison says:

    Young people,

    If you have the ability to save for your own car, education, house, and land, by all means cultivate the virtues of frugality, contentment, and godliness. The banks offering you huge loans is to enslave you whereby you sign up for many years to pay it off (they very well know) disasters, divorces, and misfortunes are inevitable.

    Not everything attain QUICKLY and looks pleasant to the eyes like a beautiful home, means its GOOD for you. If you are a great SAVER, the purchasing power is in your hands, you have peace of mind, and a good feeling when you acquired what you saved for.

    Do not compare yourself with others. Haste make waste.

    Unison

    • Anonymous says:

      Yep just rent for 30 years throw the money down the drain and turn around and still not have a place to live in after your spent your whole life “saving”
      Don’t worry Unison has the answer God, Bible Blah blah blah

      Nothing but drivel

      Anyone who takes financial tips from this imbecile deserves what is coming to them

  18. Anonymous says:

    I think the only ones to say no to reform will be the scum sucking banks on this island..

    • Anonymous says:

      Yeah. Between the taxi drivers and the banks, these clowns are untouchable.

      Banks charge fee after fee, offer no competitive credit card services, crappy interest rates for savers, and expensive mortgages for people wanting to buy increasingly stupidly priced homes. There’s no competition, as they’re all happy with the status quo. Unfortunately the market here is too small for competitive personal banking, so we all get screwed over by the cartels.

      • Anonymous says:

        No we got screwed by the absolutely outrageous prices of real estate in Cayman. No matter who you borrowed money from a $300,000 house is still a $300,000 house and you either pony up high monthly payments for the 3 bedroom home you need or you tell the kids to make due with bunk beds and downsize to something you can afford.

    • Anonymous says:

      No, honest hardworking homeowners who subsidise defaulting wasters should object to any reform that makes realising security harder and more expensive. Wing soft on those that break their promises pushes up costs for the moral majority who pay their bills.

    • Anonymous says:

      When you enter a mortgage, EVERYTHING is explained to you. You’re payments, you obligations on both sides, everything. If you can’t afford it, don’t enter into one.

      • Anonymous says:

        But people aren’t listening because all that’s between their ears at that moment is “I got a house! I got a house! Omg!”. That’s the problem and that’s the point. Even a perfect explanation fails to get the information across. You need a document that explains, in plain English, exactly how default is handled and the consequences. Just give it to the borrower and tell them ‘read and make sure you understand and take legal advice on this if needed. We hope it never becomes relevant to your loan but it’s important you understand all of this up front’. Simple. Then you don’t have delinquent borrowers making all these process-related complaints.

        • Anonymous says:

          They’ll say they’ve read it but they won’t have. And they’ll bleat as loud as ever when the time comes.

        • Anonymous says:

          Cayman needs the programs like the US have where you have to take a course and receive a certificate for it that you need to give to the loan officer that says you understand what you are getting into.

  19. Anonymous says:

    About time they sort out thiecruth,ess was in which banks are fireclosing on people’s properties while the loan officers and their best friends the real estate agents line up for first picking.

    • Anonymous says:

      Ummm no.. most banks have policies where staff cannot buy foreclosed properties even if they go through a realtor. Most banks have policies not allowing staff to buy anything the bank has repossessed or foreclosed on. If you know a bank that allows it then that bank is shady AF.

    • Anonymous says:

      And yet as much as you can blab this on social media you will be unable to find one single example of this happening.

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