Following the establishment of NAMA in 2009 and the subsequent assignment of its loan books to various investment funds, it has become practice for the original lender to issue a letter to the borrower advising of the assignment and for the purchaser of the loan to issue a letter to the borrower advising of the new party to receive payment.
These letters have become known as “Goodbye”, “Hello” letters and while they have been considered by many to simply be a matter of course, their importance for the enforceability of loans was recently considered by the High Court.
High Court case
The original lender loaned the sum of €240,000 to the borrower in 2003 to be repaid over a period of 25 years. The lender sold the loan in 2006 to an affiliated company and at that time the borrower received a statement of account, which stated that the original lender had transferred substantially all of its Irish mortgage business to its affiliate, but that repayment arrangements remained the same.
In 2015 the borrower received a letter, terminating the loan facility and demanding payment of the total sum plus interest.. The letter did not identify how the affiliate became entitled to the loan provided to the borrower by the original lender.
Section 28(6) of the Supreme Court of Judicature (Ireland) Act 1877
The borrower challenged the right to enforce the loan on various grounds, including that they were not provided with adequate notice as required under Section 28(6) of the Supreme Court of Judicature (Ireland) Act 1877 (Section 28(6)).
Section 28(6) provides:
“Any absolute assignment, by writing under the hand of the assignor, … of any debt … of which express notice in writing shall be given to the debtor trustee or other person from whom the assignor would have been entitled to receive or claim such debt..., shall be and be deemed to have been effectual in law, … to pass and transfer the legal right to such debt…. from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor”.
The Court held that in order for a notice to be valid under Section 28(6), the borrower must be given express written notice of the assignment of the loan to include the identity of the party to whom the loan has been assigned, and the necessary information to allow the borrower to know with reasonable certainty that the assignment has taken place and that payment can be made to the party to whom the loan has been assigned without any loss arising to the borrower.
Lessons for lenders
The risks in not providing adequate written notice to a borrower on the assignment of a loan were clearly flagged by the High Court. Vendors and purchasers of loan books should take legal advice to ensure that their “Goodbye”, “Hello” letters meet the necessary standard. A failure to provide adequate notice to a borrower could result in the purchaser of the loan unintentionally saying goodbye to the enforceability of the loans and hello to unnecessary litigation.