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How can you obtain a two year suspension of payment of mortgage installments?

Many individual investors having acquired properties in France under leaseback programs are now facing difficulties to pay the monthly installments of their French mortgage.

These investors had purchased a property in France, usually in a “Residence de Tourisme”

To beneficiate from this tax advantages (notably reimbursement of VAT), all the investor in a residence had the obligation of renting out the newly acquired properties to the same management company under a nine year French commercial lease (“bail commercial”).

The management is responsible for subletting the properties, the most often to holidaymakers for package holidays.

If these leaseback programs have often been profitable to all parties there have been many situations where the tenant, due to crisis in the tourism industry , has defaulted in payment of rent.

The failure of the tenant to pay rent has put the investor in the incapacity to repay their mortgage leading to litigation with French banks.

Our Practice is often questioned about possibilities of obtaining extra delays from the bank having granted the mortgage.

French banks are rarely willing to negotiate rescheduling of installments unless the debtor is prepared to pay a substantial sum up front.

Further, owners who do not live in France are not eligible to French consumer insolvency procedures “procedure de surendettement”.

Nevertheless, there is an option for investors having difficulties to repay mortgage in France.

Under article L.313-12 of French Consumer Code The “Tribunal d’Instance” (civil court for petty claims) can suspend payment of mortgage instalment and interest for a maximum period of two years.

The Judge will order this holiday period if the claimant can prove that it can help to overcome the investor’s temporary financial difficulties.

This could mean for instance: replacement the management company by a new non-defaulting one, the investor’s financial situation improves (i.e. new employment) or the property is sold.

Once the holiday period has been granted the investor/debtor is in a stronger position to negotiate a long-term solution with the bank.

Each case is different; owners face this kind of difficulty should contact us.