There has been talk recently of a group based in Kilkenny who have a method for putting properties beyond the reach of banks. According to papers even Bill Cullen is part of it. Upon hearing about it and how it used a ‘trust’ structure to put property out of harms way we initially thought it referred to [glossary id=’6991′ slug=’unencumbered’ /] properties; but apparently it works for all properties including those for which there is a [glossary id=’6898′ slug=’mortgage’ /] secured against the home according to its promoters.
We were asked by a client to attend one of the presentations the group held, it was in Kilkenny in the back room of the Kilford Arms and was free of charge. The two people who talked at the meeting were a man named Noel Brophy and another named David Walsh, the first was a builder in the USA who returned home and had since gotten into disagreement with lenders, the other a man who was fighting banks but for whom there was no background information beyond that.
The breakdown they gave is as follows.
The cost to join is €250.00 which consists of €170.00 which is their fee plus €80.00 in vouched expenses. The vouched expenses are the costs they incur in obtaining two documents for you from either the land registry or the registry of deeds and it consists of two €40.00 charges for two of the following documents. The first is either the certified copy of the folio (land registry) or certified copy of memorial relating to the conveyance (registry of deeds) and the second is for a certified copy of instrument or schedule from the solicitor who did the conveyance.
Once you have these they have you set up a ‘private trust in private’ by creating a Court of Record in front of a Notary (this may not be how things actually work, this is just what they are telling people). In this process you then prove ownership of the property via the documents obtained from the various registries.
They say that the bank don’t show as owner because they only have a charge, and that once you are shown as owner and give an ID that the notary stamps this and it can’t be overturned even by the Supreme Court. The value of the property is placed as zero as only the folio number is going into the trust.
After that you get a 999 year lease from the trust which means you pay a nominal rent of €100 a year for the use of the property.
They say that other than the grantor, trustee and beneficiary that nobody has the right to enter this trust for any reason. Charlie Allen (who is the key-man of it all) gets power of attorney to administer the trust. In short, he can do with the property as he sees fit, but they say that in practice what he does is ‘remove the debt’ from the property because the bank can no longer prove it exists in connection with the person via the vehicle just described.
This happens (they say) within about three months.
The charging structure is as described for a family home, on investment portfolios it’s 10% of the value of the estate, on people in receivership they charge 50%. They claim there is €1,000,000,000 of property gone in, this could mean (taking that the main attraction is with investors, some of whom are in receivership) that there is about €100,000,000 of potential real estate being transferred to the promoters which is an unusual brand of philanthropy given that the ‘pool of money’ is mean to be used to defend cases.
Noel Brophy then went on to give an incorrect version of how accounting in banks work, he did mention fractional reserve banking and some things which had tinges of ‘real life’ systems, but his description of debits and credits was wrong, that’s not open for debate, the rules have existed for over 600 years.
The ultimate end is that they claim they can remove the banks ability to force a liability on you, and that you can’t bring a private trust in private to court, ergo the bank can’t chase you any more through the courts, as well as stating that the only people who can open this trust are the people in it.
All paperwork now goes through a company in Kilkenny, I asked where the company was, for the contact details and any other information but it was not supplied.
Upon give over power of attorney you relinquish the right to defend yourself from the banks because you are now only a tenant, you don’t have to pay property tax because you are a tenant. They also said that banks now have an ‘anti-trust’ clause stitched into loan offers and that there is no mentioned of a ‘mortgage’ any more, rather it’s an extended line of credit.
That’s it in a nutshell. Now I’ll give some concerns about this set up and why we are advising all of our clients to steer clear of this group.
1. They are not regulated by anybody, they are doing things that you might normally require a solicitor to do but without being solicitors, without any professional indemnity and without having the likes of the law society as an overseer. They are also not regulated by the Central Bank even though they are giving advice on things that have deep financial implications. While debt advice is an unregulated activity, many firms offering it are regulated and that one side of their operations has that it would often mean they carry over best practice into the other activities and they are also required to ensure the client is treated fair and understands that the service is not regulated.
2. If only the folio number goes in then they aren’t ‘taking away your debt’ they are simply making it that the title might have a blip on it that deters buyers or which means it can’t be easily conveyed. They said it meant two properties couldn’t be sold at an auction, I rang the named auctioneer who told me that it wasn’t a case that ‘they couldn’t be sold’ they were merely withdrawn and that’s a different thing. They didn’t ‘scupper the auction’ they may have just created a delay in the process. What they also don’t tell people is that this could be reversed.
3. If it only takes three months to ‘remove the debt’ and there are 1,000 people in this and it existed for the last two years then why are there only three success stories? That’s a 0.003% success rate, you could probably achieve the same result by doing Part 4 Data requests and finding that there was paperwork out of order in the banks – in fact, your success rate would likely be higher using that approach.
4. If you rent a property worth a large sum for €100 a year is there any Benefit in Kind due? Getting something for less than it’s market value could confer some kind of tax liability (potentially).
5. If you are intentionally evading creditors and create a gain that doesn’t incur tax but you haven’t outlined the scheme to Revenue then you could be guilty of an offence and there are also issues surrounding Anti-money laundering & financing of terrorism Act (tax evasion clauses).
6. If you have a property with a mortgage of €500,000 and it’s magically turned into zero is it a capital acquisition when you are the beneficiary? If so what is the rate of tax? As you are not gaining a family home (you become a tenant) is there a potential liability there?
7. Does the trust require disbursement? (an annual release of a certain amount of the assets held).
8. Can it be reversed if challenged? The fact that banks haven’t tried to challenge doesn’t mean there ‘is no challenge’ it probably means they have gone after other low hanging fruit and will put a case together on this one in their own good time.
9. Reversal of transactions are covered in the new Insolvency legislation, you can’t intentionally transfer property to avoid creditors.
10. Of course, the big concern, and the first thing on my list (although last in this list) is that they won’t disclose how it works – the bit where the banks can’t go after you and they ‘remove the debt’.
This has all of the hallmarks of something that is either ‘too good to be true’ or perhaps ill thought out and where the absence of a challenge to date is being taken as evidence that ‘it works’ which is not how the legal system operates. The moving of an asset to a trust doesn’t mean a legal charge suddenly doesn’t exist, it doesn’t mean that there was never a lien or a contract between two parties, if using trusts to stop creditors was that simple we probably would have heard of it before now.
Of the people at the meeting none of them seemed highly literate financially, several disclosed that they were borrowers of sub-prime lenders and the common thread was that they were all vulnerable and perhaps willing to believe something too easily, because I have learned from experience that when a person is drowning that even if you throw them a rock and say it will float that they are willing to give it a try.