Few people represent the extremes of Ireland's recent history more than Thomas McFeely.
By 2008, the 63-year-old had transformed himself from Irish Republican Army hunger striker in Belfast to millionaire property developer in Dublin. Then the real estate bubble popped. Now bankrupt and facing criticism after residents of one of the properties he developed were forced to move because of fire-safety concerns, McFeely last month lost a battle to keep his home in one of the Irish capital's most affluent areas.
"It is the latest episode of the unfortunate situation that has befallen the country," Justice John Hedigan told the Dublin courtroom as the Irish government seized the property.
Such rulings will become increasingly familiar in Ireland as one of the biggest property bubbles in European history unwinds, a crisis masked this year by falling bond yields as investors bet that the worst is over. Yet for Irish banks, whose losses forced the government to follow Greece in seeking a bailout, the true cost of the debacle is about to hit.
"It's the year when the world has to change, in the way we deal with this problem," said Garry Stran, head of the arrears unit in Allied Irish Banks, the nation's largest mortgage lender. "This time next year, when we're looking back, we should have an absolute clear line of sight that we have restructured a significant number of people."
Lenders that were bailed out by taxpayers and are owned by the state are looking at a previously unthinkable mix of repossessions and debt forgiveness as they confront the spectre of loans that will never be repaid.
They face the following conundrum: Move too quickly and aggressively in dealing with bad loans and risk cratering the banking system again and imperiling any recovery in real-estate prices, at least in Dublin. Move too slowly, and a debt-laden economy will struggle to grow as borrowers rein in spending.
Irish household debt had tripled to €214 billion (HK$2.17 trillion) when the real estate market collapsed in 2008, from €75 billion in 2002, according to Dublin-based Goodbody Stockbrokers. As a share of household income, debt has risen to 210 per cent from about 117 per cent. That's about twice the average in the euro area.
Four years since the collapse, about 30 per cent of Irish home loans by value, including so-called buy-to-let mortgages for rental properties, are in arrears or have been modified.
Banks have largely held off on repossessions or debt forgiveness after taxpayers were forced into a €64 billion rescue of the financial industry.
While they have set aside about €6.4 billion of provisions for expected bad loans, actual write-offs in the 30 months through June were €250 million, say Goodbody Stockbrokers.
"Banks have been playing a waiting game, hoping things improve," Lars Frisell, chief economist at Ireland's central bank, said in Dublin two weeks ago. "That's not happened. It's time to stop procrastinating, to find out where the losses are and crystallise them. Take the losses."
That means more scenes at the courts like those on November 19 at the case of McFeely, whose bankruptcy affected more than just his own 5,100 square foot mansion in Dublin's leafy Ballsbridge district, the former German embassy.
The National Asset Management Agency, set up by the government to take over bad loans from banks, seized his home and put it on the market for €3 million. In 1980, McFeely spent 53 days on hunger strike in a Northern Ireland prison as IRA members sought to be recognised as political prisoners. Ten died in a second hunger strike in 1981.
At the height of the Celtic Tiger boom, McFeely helped develop the sprawling Priory Hall housing estate on the outskirts of north Dublin. A year ago, about 250 residents were forced to move out of their homes because of fire-safety concerns. They have yet to move back. Outside court, McFeely declined to comment on Priory Hall or the repossession of his home.
Most borrowers will keep their properties, as banks roll out plans to avoid wide-scale repossessions and forgive vast quantities of debt.
"By any definition, the financial crisis in Ireland in general and the mortgage crisis as part of that is massive," said Jeremy Masding, chief executive officer of Dublin-based Permanent TSB, the largest mortgage lender during the boom.
He said the bank won't talk about writing off debt before "we have exhausted all our efforts" on other solutions. In some cases, borrowers will be encouraged to trade down to smaller homes, while the central bank is pushing the idea of split mortgages, where portions of loans will be put on hold until the person's circumstances improve.
For other debtors and banks, though, the future may lie in negotiating forgiveness.
In one of the few cases to go public so far, nurse Laura White in April told national broadcaster RTE that Bank of Ireland Plc had forgiven €152,000 of her home loan after she agreed to repay the Dublin-based bank €18,000 over six years and surrender her house. Bank of Ireland declined to be interviewed on its strategies for dealing with arrears.
A 15-minute stroll away, at rival Allied Irish, bankers are preparing to write off debt on a much wider scale than previously. A 2,000-strong new unit is "cranking up" to deal with troubled home loans, said Stran, who is responsible for managing unpaid mortgage debt at the bank.
"We are absolutely in a place that says we will write off debt if that's the right thing to do," Stran said in an interview at the bank's headquarters in south Dublin. "That's something we will do on a commercially sensible basis, but we are not into wholesale debt forgiveness."
Failing to reach deals will push more borrowers and banks into new insolvency mechanisms under laws scheduled to be enacted by the end of this month. For unsecured debt, borrowers can seek to have as much as €20,000 written off even without approval from lenders. Larger amounts of unsecured debt can be written off if the majority of lenders agree.
While "€300,000 diamond bazooka" engagement rings will have to be sold by people seeking to have debt forgiven, some assets may be kept, Justice Minister Alan Shatter said in November.
Shatter told parliament he was willing to reflect on the value of "a single item of jewellery of … emotional significance … It may be a modest ring someone has inherited from a deceased grandmother or mother."
Troubled borrowers will be able to seek writedowns of as much as €3 million on secured mortgage debt in out-of-court settlements. Yet the banks hold a trump card because 65 per cent of creditors have to approve any agreement, drawing fire from groups that say lenders will have too much power.
"Despite outcry from many quarters, lenders still have the final say on any debt-management proposals from consumers," said Paul Joyce, a policy researcher at the Free Legal Advice Centre. He criticised the lack of "an independent arbiter to assess whether those proposals are reasonable or not".
Where deals cannot be reached, banks can repossess homes and bankrupt individuals. Some borrowers may even choose bankruptcy, as they will exit the process debt-free after three years under the new proposals. The current bankruptcy period is 12 years.
Shatter has said he expects 3,000 bankruptcy applications in the first year of new insolvency laws and systems, compared with 30 people declared bankrupt in 2011.
Either way, banks are going to end up controlling more homes than ever before. They held just 961 owner-occupied homes at the end of June, according to the central bank. Bank of Ireland CEO Richie Boucher told lawmakers a month ago that the lender's "primary focus" is to keep people in their homes, yet "our policy is to maximise the recovery of monies owed to us".
"Sadly there will be those people who don't want to engage with us or those people who clearly, whatever happens, will never be able to afford this," said Stran at AIB. "There will be a number of properties which we have to take into possession, either voluntarily or forced, at a scale which this organisation has never seen before."