February 26, 2018

Properties: foreclosure despite punctual repayment

Rumors of opaque foreclosures of residential property unsettling clients of many banks. Business conduct is indeed questionable but after today’s legal situation quite possible. Now the federal government wants to intervene.

In recent weeks, went to the banks and savings banks are a variety of requests insecure Customers who financed their home ownership credit. They wanted to know if their bank ever is your partner yet or whether their loans may have been sold in the meantime to a financial investor. The background to this uncertainty is regularly circulating reports of foreclosures that have been run by individual purchasers of loans in the way, though affected borrowers had previously always repaid their debts to the Bank reliable.

This business practice is indeed questionable, based on the current legal situation but quite possible. Because of the financial investor, the so-called mortgage is sold, which remains in full for the entire term of the loan agreement. The redemptions are reflected in turn in so-called security purpose statements contradict, but not go on sale to the investor. “However, since the sale or assignment of loans with the corresponding underlying debt is legally possible without any problems, the security purpose statement is thereby invalid as obvious to the buyer, are the legal door to abuse opened” Helmut Weight describes the mechanism by the Federation financial planners.

“Never thought of it that banks can be so faithless”

Actually, according to the security purpose explanation of his view protects the borrower from having a foreclosure sale at a higher than justified demand is driven – as long as mortgage and explanation are in one hand. Therefore, the system worked for decades and sparked the comparatively complicated mortgage as a classic real estate financing instrument in retail banking largely on – until the first time financial investors as third in the league appeared and revealed the gap in the system. “You just did not think about it that banks can be so treacherous,” says Udo Reifner the Hamburg Institute for Financial Services ( IFF ).

Currently, it is difficult to estimate how high the volume of retail loans sold is with which the legal abuse can be operated. To date corresponding package sales by Hypo-Vereinsbank, Aareal Bank and Sparkasse Südholstein have become known in which, among others, the American Society Lone Star acted as buyer. Other banks, meanwhile, are trying to reassure their customers.

They had not yet sold any-performing personal loans to financial investors, for example, is the Commerzbank response to corresponding customer inquiries. However, they want to keep open in principle as “modern financial institution” for the future the option of sale of receivables. Their promise is: “We will pay particular attention to the fact that the existing security purpose declaration is accepted by the purchaser as a legally binding and respected.”

Advance the abuse a bolt

The legislator wants to advance the possible misuse of loans sold already this spring a bolt. In the currently under consultation “law limiting the risks associated with investments”, which will make it difficult anyway “macroeconomic activities of financial investors”, could in the short term, a passage to loan sales find their way. “It is clear that that is recorded in any form,” says SPD deputy Reinhard Schultz, the member of the Committee on Finance Committee.

To prevent “indecent business conduct” in the future, he advocates a comprehensive information to the borrower upon the sale of their loan as well as a special right for them without a prepayment penalty. The Union provides increased transparency as key levers, considered a special right, however, critical because it would complicate sales of loan packages total.

Transferability of credit risk a valuable asset

A hearing on the issue will take place in the Finance Committee on Wednesday. In April, the law could be adopted already. the banks find it hard but straight to the special termination. “Possible individual cases of abuse must not be taken as an opportunity to intervene in the years grown and tested structures of the loan and enforcement of the law,” even the Association of German Pfandbrief Banks spoke up to this week. The transferability of credit risk is a valuable asset for the financial center of Germany. “A special right of termination borrower would put this international competitiveness at risk.”

Adversity threatens the selling banks who let their customers down but after the currently valid legal situation. A loan buyer can after a statement by the Federal Ministry of Justice namely only claim the mortgage without considering the previous amortization in the security purpose explanation if he does not know the security purpose of the mortgage and the amount of the secured claim.

In practice, therefore, would bank, assign the mortgages, pay close attention that the acquirer obtains such knowledge – “otherwise they can get pay damages their customers,”. IFF Director Reifner encourages affected homeowners expressly to sue their banks for damages. Sufferers have only the problem that a foreclosure is completed faster, shall be issued as a court judgment for damages.