Buyer Cannot Alter Mortgage Demand
Tuesday 04 October 2016
A buyer seeking to rely on a mortgage rate lower than that stated in the sale and purchase contract risks losing their deposit.
As is normally the case in French property sale and purchase contracts, if the purchase is being funded in full or in part by a mortgage, completion of the sale is conditional on the seller obtaining the mortgage.
The contract will contain in it a clause along the lines of 'condition suspensive d'obtention de crédit/prêt immobilier'.
The buyer is required to state the terms on which the mortgage is being sought, such as the amount, duration, and maximum rate of interest.
In addition, they are normally granted 45 days to obtain a mortgage offer, after which the contract lapses, although a longer period can be agreed.
There is frequent litigation in the French courts concerning this condition suspensive, sometimes due to poor drafting or to delays in obtaining a mortgage, or simply because the buyer has had a change of heart and seeks to use it to withdraw from the agreement.
In a recent case before the French Supreme Court, the Cour de Cassation, a buyer signed a contract with a clause suspensive to obtain a mortgage at a maximum rate stated in the agreement.
In seeking to obtain a mortgage at the best rate, the purchaser subsequently made application for a mortgage at lower rate, on which he was refused.
As a result, he sought to be relieved of the obligation to purchase the property on the basis of the conditional clause.
The seller refused to accept that the purchaser had acted in good faith and brought an action in the courts, arguing that by seeking to obtain a mortgage at a lower rate it was contrary to the conditions laid down in the sale and purchase agreement, the compromis de vente.
In a hearing at the Court of Appeal the judges found in favour of the purchaser on the basis that the mere fact of seeking a lower rate than that stated in the sale contract did not amount to a breach of contract. As a result, the seller was thereby unable to invoke the penalty clause contained in the contract.
This was not the view taken by the Supreme Court to whom the seller appealed, who considered that the buyer had not fulfilled their obligation to seek funding in line with the conditions stipulated in the sale agreement, and so overuled the lower court.
If you may be interested in seeking a mortgage in France, you can visit French Property Mortgages to explore the options available to you.