Barrister says banks do not want to repossess homes
A barrister has dismissed claims that banks negotiated mortgages in the knowledge that borrowers would default and allow the lender to seize properties at bargain prices.
Christopher Swan, a property lawyer, said that he had heard anecdotal accounts of corrupt practices said to have happened in the 1970s and 1980s, but insisted that they no longer occurred.
Mr Swan was speaking as he gave evidence at last Friday’s session of the Commission of Inquiry into Historic Land Losses.
He claimed that it was not in the interest of banks for mortgages to fail and that financial institutions and the courts did everything they could to help struggling borrowers.
Dirk Harrison, the counsel for the commission, asked Mr Swan if banks had “engaged in unfair practices” to swindle borrowers.
Mr Swan said: “There has been some concern, especially in Bermuda, regarding the practice of banks and the perceived – whether real or actual – in terms of people losing property.
“There is a fact that the recovery of debt from a borrower has created much angst in Bermuda.
“There is a perception that unfair practices have been undertaken and there’s a complaint from borrowers that financial institutions have engaged in unfair practices to the borrowers’ detriment.”
Mr Swan added that banks were in the business of making money – and that they had to protect themselves against potential losses.
He said that borrowers signed up to a mortgage in the knowledge that they could lose their home if they defaulted on repayments – and that there was no legal defence if they did.
Mr Swan added there was a perception of “unfairness” whenever a default case went to court – with the borrower seen as a ‘David’ against a banking ‘Goliath’.
But he insisted that banks were duty-bound to protect themselves, although they could marshal more powerful resources than a customer.
Mr Swan said: “They have very good paper trails and have very deep pockets and can afford to hire the best of the best.
“The majority of people who find themselves in default don’t have the business savvy to address the matters themselves, and if they’re in default of the mortgage, they don’t have the resources to hire the same calibre of attorney or even attorneys at all.
“So yes, there is an element of unfairness, but I should flip the coin a little bit.
“The underlying argument that any bank can make was ‘we had an agreement and if you default on that’ …”
Mr Swan added defaulters might have “compelling” arguments for falling behind with payments, but that banks could not be blamed for taking legal steps to ensure the debt was paid off.
He said: “The inability to pay your monthly mortgage is not a defence that can be employed in court. Life happens.”
Mr Harrison suggested that, in the perception of some borrowers, a recalled mortgage was “a land-grab”.
Mr Harrison said: “It is stealing, or taking unlawfully.
“If a bank seeks to call in a loan, that action in itself is a definition of stealing.”
But Mr Swan said: “The bank owns the property until you pay off the debt and if you don’t pay off the debt, it’s not illegal for the bank to retrieve those monies that have been borrowed.
Mr Swan highlighted that the banks and courts were prepared to be flexible with defaulters in the hope that debts could be paid off.
He said that, in typical cases, a borrower could miss payments for three months before a bank started legal action.
Mr Swan added that even then, the courts would give a borrower time to look for a way to discharge the debt.
He said: “The bank does not want your property – they really don’t – they’re not real estate agents.
“They want your money, and I think the incentive would be that, in situations where they can fix a scenario, they will do that, because ultimately that means they will continue to receive their money – not only the principal that’s owed, but also the interest.
“If the bank can maintain that, that’s in their best interest.”