Jan 23

On which grounds can French property owners litigate against French banks to claim compensation for professional negligence?

The Practice is regularly questioned by English speaking owners who have purchased properties in France financed through a mortgage with a French bank.

Owners are no longer in capacity to pay monthly instalments of the mortgage because of financial issues.

Many owners believe that the bank is at least partially responsible for the situation.

Owners wish to implement a procedure against the French bank to challenge the validity of the mortgages and claim  compensation for professional negligence.

a) Professional negligence

It is case law that, prior to loan, the bank must warn the borrower regarding its financial capacity and about the risks of debt resulting from the loan.

A debt / income ratio superior to 33 % is considered to be unreasonable. This rule is applied with more flexibility for higher income (for French standards) above 3000 €.

b) Consequences if the bank is found to be negligent

It is difficult to estimate what are the financial consequences of the absence of warning on the risks of debt resulting from the loan and hence calculate the damages clients could be entitled to.

There are three possible methods to award damages:

Sum equivalent to the total due to the Bank

The judges rarely grant damages using this method anymore because they deem it is “too favourable to the debtor”.

Sums equivalent to the interest, penalties and bank fees paid because of the mortgage

During past years, this method has been largely used by judges (Cour de cassation, Civ. 1ère, 1er juillet 2010, n°09-16.474).

Other methods of evaluation have been used in recent years.

In a particular instance, a French court has estimated that if the mortgagee had been warned of the risk of debt, there is a 5% chance that he would not have subscribed.

Consequently the Judge granted the mortgagee 5% of the sums initially borrowed from the bank.

(Cour d’appel de Grenoble, 2 juillet 2013, n°11/01558, Jurisdata 2013-014188). (Cour d’appel d’Aix-en-Provence, 14 juin 2013, n°2013/342, Jurisdata 2013-104975).

To obtain a satisfactory and substantial compensation it is important to provide the Judge with comprehensive prof of all the financial consequences of the inappropriate mortgage.

c) Validity of the mortgage

Indeed the signature of a mortgage is subject to strict and mandatory stipulations of Consumer Law.

The mortgagee must notably have a ten days cooling of period from date of reception of the mortgage offer (by recorder delivery) before signing and returning the contract.

Judges usually demand that the bank proves date of reception by producing copy of envelope with stamp.

Further, the mortgage offer must mention the “TAUX EFFECTIF GLOBAL” (“effective interest rate”).

If the offer does not comply with these rules interest and penalties are no longer due. Only the capital is due.

Owners who are encountering difficulties with their bank should contact the practice.

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