Loan Sales: Home Owners Alarmed for Your Financing Loan!

May home owners have had sleepless nights due to rumors that banks are selling their loans to dubious financial investors. LG2G will inform you on the current legal situation, as well as which steps you can take for your own protection.

When one takes out a loan then many people rely on the “bank they trust” to engage a credit contract with a mortgage. However, if you dare to get into financial turbulence, then you can easily jeopardize your real estate. With an increasing pace banks are selling the credit claims on their customers to hedge funds that are only interested in forcefully collecting in order to achieve a quick profit. It has even happened that house builders, who have punctually paid all of their installments, still had to suffer foreclosure sales on their lot.

Currently, bank customers only have the possibility to circumvent a foreclosure sale with a “safety clause” in the contract. In such clause, it will be stipulated that a foreclosure sale will only be possible when the debtor has not paid his or her installments on time. However, it remains permissible for the bank to sell such loan without approval of debtor §398 BGB). To avoid having the loan assigned, it would be best to negotiate this with the bank and have a stipulation against such in the contract. (Good luck with the negotiating!)

There is some dim light at the end of the tunnel. The OLG Munich decided in a similar case that such sale via an auction is illegal. The story in a nutshell: A credit on €290,000 was taken out and secured with a mortgage. This debt and mortgage was sold by Horizont first to Hypo Real Estate then to Lone-Star Group and eventually to Westend Olympic GmbH. As the debtor was late with a payment, the new owner of the mortgage recalled the loan and wanted to force him to sign a power of attorney to authorize the Westend Olympic GmbH to sell the house at any price. The debtor refused. He wanted to repay it. In order to do so, he requested to be informed of the debt’s current value. The debtor initiated a lawsuit to prevent the foreclosure and won the complaint.

The judges of OLG Munich (re 5 U 5102/06) considered it a gross violation of the loan holder’s duties. The Westend Olympic was sentenced to instruct the debtor on the remaining debt. However, this is only a pyrrhic victory. Westend Olympic had announced that it planned to continue the foreclosure sale after having settled previous payments. The only possibility for the debtor to save his house is to quickly refinance himself and bid during the foreclosure sale so as to obtain his own home.