What Is Real Estate Credit Legislation
April 5, 2020
It presents to you today the most important points of the legislation on mortgage loans. Detailed in the Consumer Code, they concern and protect individuals.
Mortgage and individuals
The legislation in force only applies when mortgage loans are made by individuals outside of any professional activity:
- Purchase of a property
- Repair, improvement or construction work for an amount greater than $ 21,500
The precise elements are found in article 312-1 of the Consumer Code.
The law is also very strict on the means of communication in mortgage credit. Indeed, any advertising medium is forced to display the main characteristics of the credit: terms of financing offered, TEG (Effective Global Rate) of the loan and identity of the lender must be mentioned. In addition, advertising has the obligation to display the fact that the borrower has a guaranteed period of 10 days of reflection before definitively accepting his loan.
The TEG or Global Effective Rate contains the majority of the costs incurred during a loan: the administration fees, the interest rate, the commission of intermediaries (brokers, etc.) are included in it. However, note that the notary fees are outside the TEG.
Legal obligations of credit organizations
The Scrivener law details these, indicating that the lending institution must, before accepting the credit, deliver to the applicant an offer having the following characteristics:
- The reason for the credit;
- The identity of the parties;
- The different modalities allowing the provision of the sum;
- The need repayment schedule over time, clearly indicating capital and interest and their share in the repayment;
- The different requirements (insurance, mortgages, etc.);
- Possible arrangements in the event of transfer to a third party;
Any costs if the purchase of the property does not take place
If these obligations are not met, the contract may be canceled, or the lender may lose interest.
Mortgage: ten days to think
You have 10 days to think about your credit, which is compulsory. You cannot accept for a shorter period than these ten days. Thus, the bank cannot lend you money before the end of this incompressible period.
If you accept before 10 days, the contract is canceled.
Property: Four months, no more!
Once the mortgage has been acquired, you have four months following the acceptance of the credit to buy your property. If, beyond these deadlines, nothing is done, your contract is terminated. You are then responsible for repaying the sums loaned as well as the interest, and the borrower can also claim compensation to cover the costs of studies.
Renegotiate your mortgage
If you wish to renegotiate your mortgage, you must add an addendum to your existing contract. This endorsement summarizes the new clauses applicable to your contract: the new amortization schedule, the TEG, the cost of credit calculated on the basis of future schedules and fees. Then, the borrower again has a reflection period of ten days, regulated by the Consumer Code.
Justify its payment failures
If the borrower cannot repay the debt (borrowed capital + interest on the loan) due to his creditor, he will run the risk of being sued in court. If he loses the lawsuit, he will have to bear, in addition to the reimbursement of the debt, the legal costs but also an indemnity that his bank can request and which can amount up to 7% of the sums still due.
If you wish to repay your mortgage prematurely, your contract may stipulate the impossibility of doing so for less than 10% of the amount borrowed. In addition, it is also possible to request compensation, but this cannot be greater than the value of a semester of interest on the capital repaid.
Mandatory credit insurance
If you want to take out a loan, you will almost necessarily have to take out credit insurance. Indeed, this is required by most banks and financial organizations. If the insurer refuses to commit, the claimant can request cancellation of the credit within one month.
Real estate: professional obligations
In order to be able to practice in the real estate field, you must:
- a financial guarantee;
- liability insurance;
- a mandate to carry out the operations for which they are likely to receive remuneration;
- the possession of certain diplomas