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Andrea, Esq.
Andrea, Esq., Attorney
Category: French Law
Satisfied Customers: 11731
Experience:  25 yrs. experience in family law, estates, real estate, business law, criminal defense, immigration, and employment law.
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We bought a leaseback property in France in Nov 2010. As part

Customer Question

We bought a leaseback property in France in Nov 2010. As part of the purchase agreement with the vendor they gave us a 3-year guarantee which was supposed to ensure we achieved a minimum of 5.5% net income for the first 3 years. The first 2-years worth of the rental payments were deposited with the rental company upon completion (and have been paid across to us as anticipated). However, the vendor is now facing financial difficulties and is refusing to make any further rental payments. Furthermore, we are now discovering that the villa has some residual problems that were not rectified by the vendor - principally the roof was not properly insulated which has led to a significant build-up of dampness and mould during the winter months. To cap it all, the economic downturn has led to a reduction in holiday rental interest in the area where our villa is located and I'm finding it hard to see how we will ever generate enough rental income to cover the running costs and the mortgage payments. There is also now substantial negative equity in the property as we bought with a 100% mortgage and property values in the area have fallen in recent years.
I understand that French mortgages are non-recourse. Can we simply hand the keys back to the mortgage holder (Credit Agricole) and let them sell the property at current market value, safe in the knowledge that CA couldn't pursue us in the UK to repay the shortfall? If not, what other legal options do we have to escape from this situation?
Thanks
Geoff
Submitted: 1 year ago.
Category: French Law
Expert:  Fran-mod replied 1 year ago.
Hello,

I'm Fran, and I’m a moderator for this topic.
We have been working with the professionals to try to help you with your question. Sometimes it may take a bit of time to find the right fit.

I was checking to see if you had already found your answer or if you still needing assistance from one of the professionals.

Please let me know if you wish to continue waiting or if you would like for us to close your question.

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Customer: replied 1 year ago.


No - I haven't found an answer yet. I will continue to wait for your reply.


 


Geoff

Expert:  Fran-mod replied 1 year ago.
Hello,

Thank you. We will continue to look for a professional to assist you. Please let me know if I can be of any further assistance while you wait.

Best,

Fran
Expert:  Andrea, Esq. replied 1 year ago.

Good Day, My name is Andrea, I am a Licensed, Practicing Attorney and will help you in any way I can. Please allow me a little time to do some research on French mortgages.

 

Q. What terms does the mortgage document recite if you stop making payments to the mortgagee (Credit Agricole) ?

 

 

Thank you,

 

 

 

Expert:  Andrea, Esq. replied 1 year ago.

Hello, again, I did the research on your question and this is the information I found,

 

First, the mortgage document which you signed will indicate whether or not it is recourse, or non-recourse where Credit Agricole could come after you for any deficiency, even if you gave the property back to them. However, my research also revealed that in almost all of these leaseback transactions, a "Non-Recourse Mortgage" is used, so that the lender is confined to the property and cannot go after the borrower's other assets

 

Second, it is highly unlikely that Credit Agricole would come after you for any deficiency even if it were a recourse situation because they do not like going after the borrowers. Additionally, if they were to sue you (which they would not), they would have to sue you in the UK and the Courts in the UK and in Ireland who hear these cases are very sympathetic towards the borrowers because the Courts frown upon the practices engaged in by the French lenders , and the "packages" which are sold to the buyers in these leaseback situations, including a management company.

 

For all of the foregoing reasons, you could give the property to the lender without fear that Credit Agricole would come after you for the difference between the loan and the diminished value of the property,

 

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Customer: replied 1 year ago.


Thank you Andrea for your comments. I am initially greatly encouraged by what you say. However, given that this matter relates to a lot of money, I do have a couple of queries in respect of the points you make as I want to make sure of my position:


As the mortgage document is in French (and my understanding of French is marginal) I can't tell which clause will confirm whether or not this is a "non-recourse" mortgage. Can you suggest how I can be certain whether the bank would have any recourse?


Also, your research suggests that "almost all" leasebacks are non-recourse - what are the characteristics of those leasebacks in which the bank does have recourse against the borrowers?


Finally, I don't understand why the bank would sue me in the UK (if it turned out that there was recourse). Surely they would sue me in France where the property is located, obtain judgement and then enforce an EU enforcement order in the UK?


Thanks


Geoff

Expert:  Andrea, Esq. replied 1 year ago.

Hello, Geoff, Thank you for your follow up questions and the opportunity to explain further,

 

 

1. Since the mortgage document contains the rights and obligations of the parties, the best way (and only way) to be certain of whether it is recourse, or non-recourse is to obtain a translation of the mortgage document from French to English. However, and as I stated in my previous Answer, even if the mortgage document provided that it was a "recourse" obligation, the French banks have not exercised that right;

 

 

2. There are no "characteristics" that distinguish an obligation which is a "recourse debt" from a "non-recourse debt". There is only the one statement in the mortgage document itself;

 

 

3. In order to execute on the personal assets of an individual, the lender must first obtain a judgment against the individual, and in order to obtain a judgment against the individual, the Court must have personal jurisdiction over the individual. A Court can only obtain personal jurisdiction of a Defendant, if he is served with process (The Court papers) within the Court's jurisdiction. A French Plaintiff suing in a French Court would have to serve the Defendant within the borders of France. In other words, a Plaintiff suing in a French Court would have to serve the Defendant within France. Therefore, the reason that French banks and lenders have sued English citizens in the English Courts in the UK and Irish citizens in Irish Courts is because that is the only way they can obtain personal jurisdiction over the individual that they would need in order to obtain a judgment against the individual and his other assets for a recourse debt,

 

___________________________________________________________________________

 

 

Please be kind enough to rate "Excellent Service" so that I receive credit

for assisting you,

 

 

Bonus and Positive Feedback on survey is very much appreciated,

 

 

ANDREA

 

 

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