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Mortgage Delays and Sale Contracts

A delay in obtaining a mortgage approval does not invalidate a property sale contract, a French court has ruled.

In a recent case before the French Cour de Cassation, the court heard that on 21 Oct 2006 a couple signed a contract for the purchase of a flat in Toulon for €41,000.

The sale was conditional on them obtaining a mortgage by no later than 29th November 2006, with completion of the sale scheduled for 6th January 2007.

The contract also stated that these dates could only be extended at the express request of the buyer, and with the agreement of the seller.

The couple incurred a slight delay in obtaining the mortgage approval, which was not secured until 1st December, some two days after the deadline in the contract.

In the meantime the seller of the property had died and their inheritors decided that, as the purchaser had failed to meet the date for obtaining a mortgage, the contract had now lapsed.

Although this was a view later supported by the French court of appeal, the decision was recently overturned by the French Supreme Court, the Cour de Cassation.

They argued that the conditional clause had been written for the benefit of the buyer, to protect them in the event that they could not obtain funds to buy the property.

As a result, only the buyer could benefit from the legal consequences of the clause, by formally notifying the seller that they had failed to obtain a mortgage. In this case they had chosen not to do so.

The court also took into consideration the fact that there was only two days delay in obtaining the mortgage, and that the sellers had acted in good faith.

Comment

French sale contracts are always subject to conditions, if only those relating to obtaining proper title of the property.

Where the purchaser is seeking a mortgage, then a conditional clause (clause suspensive) is included to this effect.

In order to stop the process dragging on indefinitely, the purchaser (or seller) is required to fulfil the conditions by an agreed date.

In this case the court decided the fact that the seller had only missed the deadline by two days, and that they had acted in good faith, overrode the strict interpretation of this clause.

It may also be surmised that the court was probably not convinced of the good intent of the inheritors of the property, who may have wished to find good reason to escape the sale.

So it is unlikely that such an interpretation of the law could be relied upon in all cases where there is a delay. Buyers and sellers are best advised to stick to the deadlines stated in the contract for fulfilling conditions, or risk that it will lapse.


This article was featured in our Newsletter dated 18/08/2011, 01/06/2011





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