Guide to the Law on Limiting Financial Investment Risks
Since August 19, 2008, the design of credit and surety agreements and the assignment of credit claims have been subject to the Law on Limiting Financial Investment Risks (Risk Limitation Act). It is intended to provide the borrower with better protection against unlawful foreclosure, in particular by financial investors.
A gap in the Civil Code enabled the financing credit institutions until then to sell the claims from credit agreements to foreign financial service providers without notifying the customer (see also our guide to the assignment of credit agreements). Although this was an important part of the refinancing of the banks, because under these conditions, favorable lending rates could be passed on to consumers, however, it was all too often shown that the acquiring financial investors were only about the timely realization of the highest possible returns through foreclosure of real estate.
This gap has been closed by the provisions of the new Risk Limitation Act and the brisk credit trade has been curtailed. It is intended that debtors whose property was wrongfully foreclosed will be more likely to be compensated for their damage by the bank or the investor. Finally, all banks are required to offer loans that can not be sold. For these, however, higher interest rates are likely to be due.
The protection against dismissal of the borrower has been extended to the effect that in future a termination of real estate financing is only possible if the borrower defaults on at least two consecutive partial payments and at least 2.5 percent of the nominal amount of the loan. The borrower must be requested to pay by the creditor with a two-week deadline and under threat of termination.
The enforcement of a security mortgage
Due to the capital of the mortgage can not be initiated until the six-month notice period has been observed. This means that the immediate due date of the land charge to secure claims in the future is no longer possible.
In addition to delays and disadvantages for the creditors involved in the realization of land charges, there are also considerable legal uncertainties regarding future usability.
There will be difficulties in the future regarding the content of the security agreements. It is true that the law stipulates that and with what time limit the mortgage must be terminated, but not when it may be terminated. If necessary, termination of the mortgage capital is only possible with the termination of the secured loan, so that in this case, unlike the previous legal situation, the creditor must accept a delay in recovery of at least six months.
Due to the mistaken regulations, creditors must also increasingly expect litigation. It is also unclear whether an enforceable copy of the land charge order can be given to the creditor even before the termination of the mortgage. Should this not be the case, further not insignificant notary fees would arise.
In the event of the insolvency of the owner, the mortgagee only has the possibility to access the rent and lease income of the property only to the amount of the current and due mortgage interest – unless he is entitled to another enforceable title enforceable earlier. The creditor can only get to the capital if it was terminated in good time before the bankruptcy was opened and a seizure of the property took place at least one month before the bankruptcy was opened.
As a result, the delays and legal certainty will lead to higher costs for mortgage creditors and this will lead to an increase in interest rates on mortgage lending. All these circumstances a borrower should know if he wants to plan his financing.