Can a French bank obtain repayment of unpaid mortgage from a debtor residing in another EU country?

Grégory HANSON — Thu, 27 Dec 2018 09:02:13 +0000

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.

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

Grégory HANSON — Sat, 24 Nov 2018 10:50:32 +0000

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.

The post How can you obtain a two year suspension of payment of mortgage installments? first appeared on Gregory Hanson.

re payment of mortgage | Gregory Hanson

Can a French bank obtain repayment of unpaid mortgage from a debtor residing in another EU country?

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