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Cannot pay mortgage
The French leaseback scheme was always going to be a long term investment. The failure of the management of some leaseback resorts has caused financial losses to UK and Irish investors who had taken mortgages from French banks to finance the acquisition and needed regular rental income to make the monthly mortgage repayments.
The current position, resulting from the global recession, is that no sympathy is given to those who cannot honour their agreement to repay the French bank. If arrears build up for 90 days the French lender is entitled to commence repossession proceedings in the local French court. This 90 day default rule implements a recent EU Directive applicable to all banks in the EU that have advanced a loan and taken a property as security.
The mortgage deed entitles the bank to repossess if the loan is not repaid. It is evident that those who can’t pay their mortgage instalments can’t pay off the capital sum either. The French Court will be asked by the Bank to order that the property be sold at auction. The sale price achieved will rarely cover the outstanding capital plus interest and costs. As a result, borrowers are at risk of being sued for the balance owed to the Bank in their home country and this could in turn lead to the bankruptcy of the borrower.
How (or if) this “”Directive” is applied varies. There are a significant number of leaseback owners who have stopped paying mortgages and where the Bank has not started repossession proceedings. We can speculate as to why but I would guess that banks realise the price realised at auction will fall far short of the outstanding capital, and the price will be significantly lower if the leaseback is poor or “non performing”.
So if you find yourself in this position what can you do? It is no good ignoring the requirement to pay the mortgage instalments. An early approach to the bank is essential to see if some leeway in payments will be permitted for, say, three to six months. It is equally crucial that you find out if your leaseback is actually sellable and if so at what price? Then if there is a possible resolution then you must put together the parties that can achieve this?
But in the real world, under the stress caused by money problems, few owners are able to make the right decisions. Failure to answer letters from the bank, from the huissier (a court official similar to a bailiff) or from the Court can be disastrous.