‘Vulture fund’ takes share of Dublin home in €687,000 debt swap

A Dublin court has approved a debt-for-equity swap where a US “vulture fund” will take a 72 per cent share in a Dublin home in exchange for writing off a €687,000 mortgage.

The Circuit Court signed off on the novel arrangement in what is only the second court-approved debt-for-equity swaps where a creditor takes part-ownership of a property to resolve a personal insolvency case.

Robert O'Rourke (71) and his wife Christina (66) will be entitled to stay in their home at Woodside, Clontarf, valued at €950,000, until their deaths or in circumstances where they agree to sell the property.

Pentire Property Finance, the subsidiary of the US investment fund Carval, will become a 72 per cent owner in the property with the settlement of their €687,134 mortgage on the property. The fund did not oppose the application.

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Under the terms of the arrangement, the O’Rourkes must pay local property tax, maintenance and insurance on the property while they live in it.

Swapping debt for a share of a business is common in corporate insolvency but a new phenomenon in personal insolvency cases, despite being available under 2012 personal insolvency law introduced after the crash.

The first approval of a debt-for-equity arrangement a personal insolvency case came in January in a case before the Circuit Court in Trim, Co Meath in January when Start Mortgages was given a 85 per cent share in the home of a 67-year-old widower in return for the mortgage being written down from €139,500 to €18,500.

That case was later struck out by the High Court on appeal after Start raised a technical objection.

Minister for Justice Charlie Flanagan earlier this year encouraged personal insolvency advisers to devise innovative solutions, including debt-for-equity swaps, for the more difficult personal insolvency cases.

Mr O’Rourke, who was represented in the case by Keith Farry BL and Co Cork-based personal insolvency practitioner Alan McGee, told the court any alternative to the proposed personal insolvency arrangement such as the sale, surrender or repossession of the property would result in him being made homeless.

In making his case for the special deal, the pensioner cited the fact that there were 64,000 mortgages in arrears involving at least 250,000 people and a housing crisis, resulting in the homelessness of the 10,500 people.

He discussed with Mr McGee the possibility of trading down, social housing, the mortgage-to-rent scheme, renting out a room or moving into rental accommodation but “none of the options were appropriate,” he said.

“Trading down was not an appropriate, or the most appropriate option as my family are living locally to me and I am embedded in the community. There is not sufficient funds for me to trade down and purchase locally,” he said.

Mr O’Rourke told the court the couple’s four-bedroom home was located in Clontarf “near facilities and amenities that are required in our old age.”

The average monthly rent for a two-bedroom similar property in the area would be €2,000, he said, when his net monthly income was €2,180 a month.

The proposed debt-for-equity swap offered “the best suitable alternative” and that it was “not disproportionate in light of the unpalatable other options,” he said.

Mr O’Rourke argued the proposed arrangement was “fair and equitable” to the investment fund. All but €4,000 of the couple’s remaining debts of €974,000 will be written off in the financial rescue.

The couple fell into arrears on the mortgage in February 2014. Bank of Scotland (Ireland) appointed receivers to a number of other properties on Marlborough Street and Capel Street owned by the couple.

Carval, which acquired the couple’s loans from the lender, claimed all of their debts, totalling €1.66 million, were secured against the family home, which the couple disputed.