I will be staying at Carlton Hotel, Old Airport Road, Co. Dublin. I will be available for meetings on Friday afternoon at Saturday morning. Please feel free to book an appointment.
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.
Many British or Irish citizens have purchased property in France as part of leaseback development projects.
All properties in the same development are usually leased out through a commercial lease to a management company responsible for subletting it to students, elderly persons or holidaymakers.
Owner of property in France frequently ask how to evict a tenant who is in breach of contract for not paying rent.
I am afraid that there is no miracle process.
I can nevertheless outline the standard procedure to obtain a court ruling containing a payment of rent arrears and eviction order.
Prior to any court procedure, the owner must instruct a French bailiff (“huissier de justice”) to serve an injunction to pay rent arrears on the tenant (“commandement de payer”).
Under French Commercial Code (“Code de Commerce”) the tenant will then have a limited period (usually one month as stipulated in lease contract) to pay rent in arrear.
We will suppose the tenant does not pay the sum quoted in the injunction within the required delay or challenge the validity of the claim.
The owner can then have a summons to appear in court served on the tenant.
The case will be judged summarily within one to three month of service of summons. (Despite the dossier being adjourned at least once to allow defendant to prepare its case).
If proof of non-payment of rent is provided to the judge, judicial termination of lease for breach of contract will be ordered.
The Judge will also order payment of areas and eviction.
Once the eviction has been ordered, the situation will vary depending if the tenant vacates the property spontaneously or not:
– If the tenant complies with the court order and evicts the flats spontaneously and rapidly: the owners can repossess property.
– If the tenant dos not vacate, owners must instruct a bailiff to force the tenant to leave the premises, possibly with the help of the police.
IMPORTANT 1: Owners can request a payment order without eviction if they do not wish to terminate lease.
IMPORTANT 2: at any time if tenant no longer has the cash to pay rent, it can ask the Commercial Tribunal to place it under receivership. The consequences, of receivership are that until a decision is taken on the future of tenant (continuation, takeover, liquidation):
1. All eviction and payment procedures are suspended, the owner must declare the rent arrears due to the receiver within a limited period of time.
2. The receiver has to pay rent for the period after opening of receivership procedure. If rent cannot be paid the receiver must terminate leases.
3. As part of a continuation / takeover plan the receiver cannot force owner to accept substantial changes to the provisions of the lease (reduction of rent for instance). If receiver cannot pay rent lease must be terminated (see point 2 above).
IMPORTANT 3: Procedure to evict tenant of commercial lease differ form procedures concerning housing or residential lease (“bail d’habitation”). Indeed the statutory provisions on residential leases are very favourable to tenants to protect their housing right (“droit au logement”). This question will be developed in a future poste.
I am frequently questioned by property owners in France facing difficulties to repay a mortgage signed with a French bank.
Under French law you cannot just “give the keys back to the Bank”.
Any transfer of property implies a deed of sale through a French solicitor (“Notaire”).
If an owner stops repayment, it is very likely that the Bank will obtain a court decision ordering payment of capital due plus legal fees and interest.
If the owner does not comply with the court order then the Bank would probably have the property sold through a court auction.
Properties vended at court auctions are usually sold far below the market price.
It is far from certain, especial with the current state of the real estate market, that the price of sale will be sufficient to repay the Bank completely.
The Bank could then try and obtain payment of the shortfall.
If the owner is a French resident this process would be very straight forward.
It would be much more complex concerning owners with no other assets in France.
Nevertheless, there are international treaties and EU regulations organising and simplifying the implementation of foreign decisions in EU countries.
I would notably refer to the “Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters” agreed at Lugano, on 16 September 1998.
Article 26 stipulates:
“A judgment given in a Contracting state shall be recognised in the other Contracting States without any special procedure being required”
Article 31 specifies that:
“A judgment given in a Contracting State and enforceable in that State shall be enforced in another Contracting State when on application of any interested party, it has been declared enforceable there”
Finally, article 33 considers that “the procedure for making the application shall be governed by the law of the state in which enforcement is sought”.
This means that a French decision can enforced through an application procedure before the jurisdictions of another country.
It may be possible to challenge this application procedure before the local courts, if the French decision does not comply with the stipulations of the Treaty (individuals facing these difficulties should seek the advice of a local lawyer).
To conclude, it is crucial if sued by a French bank in France to defend yourself in France, because a French court decision could be enforceable out of France.