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Archive for May 30th, 2010

It used to be two –  one to change the lightbulb and another to sue him for malpractice. But if the Law Society have their way it will be three, though in the context of obtaining a loan from a bank to fund a property deal – one for the buyer and one for the seller (the existing set-up) and a new additional one for the bank. The Law Society will be meeting on 25 June 2010 to debate a change in the way property deals are managed with input from lawyers and to examine a proposal to insist on the bank using a lawyer who would oversee aspects of loan transactions.

This comes after banks have launched a barrage of actions against solicitors for alleged failings during the property boom. The London Times reports that in recent weeks, INBS and AIB have launched “at least five actions” (in the case of INBS) and “a similar number” (in the case of AIB) against solicitors for alleged negligence.  BoI and ACC are reportedly also jumping on the litigation bandwagon.

Why? Because solicitors are accused of failing to execute undertakings. “During the boom, solicitors often breached undertakings given to banks over how to use funds released by banks to complete deals, and in some cases diverted the monies elsewhere instead of paying off existing mortgages on the property or paying stamp duties.”

And what is the Law Society’s response to this history? Introduce a third set of legal eyes into the transaction on behalf of the banks. The Irish Banking Federation says this will push up loan costs. And examining the circumstances, you would have to ask why the two existing lawyers can’t just do their jobs properly. And that isn’t a joke.

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If I were Frank Daly, the NAMA Chairman, opening up the Sunday Independent this morning I would probably be choking on my granola at the headline: “NAMA: the truth it’s a bailout for developers”. Based solely on a couple of sentences from his speech last Thursday at the Association of Compliance Officers in Ireland lunch, where he said that NAMA’s “core objective will be to recover for the taxpayers whatever it has paid for the loans in addition to whatever it has invested to enhance property assets underlying those loans. It is expected that Nama will have a lifespan of seven to ten years and when it has achieved its core objective, it will be wound up”, this, according to the Independent, is proof positive that NAMA will abandon the pursuit of developers for the original loan and call off the chase as soon as the sum paid by NAMA has been recovered. And elite developers will continue to fly overhead wolfing down Beef Wellingtons (with truffles), champagne and fine wines as they go, on their way back from the K-Club to the helipad of their trophy house on Ailesbury Road etc etc

I think on balance that the Independent’s interpretation is wrong and that Frank simply used ill-judged language. The draft NAMA Business Plan in October 2009 after all clearly showed the recovery of more than NAMA would pay for the loans. However I don’t think Frank would be justified in feeling too aggrieved at the “damned medja” – if NAMA had produced a robust, defensible and transparent Business Plan then there would be no vagueness about the objectives (core or otherwise).  And whilst NAMA may now need to go into overdrive to clarify Frank’s comments (which will distract from the work at hand), the Department of Finance  might again consider how NAMA’s secrecy and lack of transparency may undermine public confidence on a widespread, and significant, basis.

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