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Conclusion in advance: If you are threatened with termination of a loan and enforcement against your property, you do not simply resign to your fate. You don't need to be ashamed, completely different greats than you have been through this. Take action early and if that doesn't help, fight back. If it comes to enforcement and compulsory auction, German courts have so far provided little help. The courts neither examine whether the bank has a claim at all, whether the termination of a loan was lawful, nor whether the bank is entitled to enforce against you personally and in kind on the property. You are advised that you could bring an enforcement action against enforcement. However, since an action to defend against enforcement results in costs in the six-figure range and also takes many years, those affected usually see no real possibility of defending against enforcement.

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Foreclosure on land charges

This is also the reason why, despite published articles in connection with the judgment of the ECJ discussed below and despite the partially outdated case law of the Federal Court of Justice, not a single case has been conducted so far that has dealt with the practice of compulsory enforcement of land charges. Hardly anyone can afford it. However, proceedings are now underway before the Stuttgart Higher Regional Court, which may be taken to the Federal Court of Justice and from there to the European Court of Justice.

Credit: Finding Solutions in an Emergency

Anyone who can no longer fulfill their obligations should contact their creditors or the bank at an early stage to find a solution. At the same time, it is advisable to seek expert advice from an expert. To do this, take with you everything that was communicated when the loan was initiated, in particular letters, emails, drafts, offers, conversation notes, the consultation protocol, the loan agreement or, in the case of structured financing, all contracts, any building savings contracts and life insurance policies, including the letter with which, for example the LV policy was delivered. Also take with you all letters and notes that are related to the termination that has already taken place or is about to be terminated. 

Very important, write down the “story” of how you came to take out the loan and how you were feeling at the time. Were you in an emergency situation, e.g. due to termination of your rental apartment, the next child was on the way, was it a partially externally financed investment or did you take out a loan to refinance your debt? What other transactions and contracts have you or your relatives concluded with the lender? Where exactly did you conclude the contract, in your apartment, at a bank?

Termination of a loan

If termination nevertheless occurs, the expert will check whether and to what extent you have rights of withdrawal, i.e. one or all contracts must be canceled with retroactive effect. This can make sense, especially with structured financing, because you may then receive a full refund of building savings contributions or life insurance contributions, or these may have to be offset against outstanding benefit installments. Contributions that do not have to be made as a result of an effective revocation cannot therefore lead to a shortfall in performance and therefore cannot lead to a reason for termination.

Most of the cancellation instructions in the contracts contain errors in content or design that give the right to cancel a real estate loan. If such reasons exist, revocation makes sense because of today's more favorable interest rates. You can also avoid paying an early repayment penalty. Prepayment penalties that have already been paid can be reclaimed within the statute of limitations of a maximum of just under four years.

Interest will be charged until a loan that has been terminated by the bank is actually repaid. These are only 2,5% higher for real estate loan agreements with consumers Base interest rate. The bank could theoretically prove greater damage, but this is rarely possible.

Termination of the land charge

If repayment is not successful, the bank can terminate the mortgage after six months and carry out a compulsory auction. This is done via an application to the responsible court. However, German courts do not check whether the bank actually has a due claim. The courts also do not check whether the loan and the mortgage have been effectively terminated. The reason for this is that the consumer can bring an action to prevent enforcement. However, in the predicament that such a consumer finds himself in, this will simply be financially impossible for him. In addition, such a lawsuit takes so long that the foreclosure auction of the property creates a fait accompli and the consumer and his family are thrown out of the house or apartment. This German legal practice is now being challenged for the first time with reference to the case law of the European Court of Justice (ECJ).

Enforcement and defense

EUGH judgment 4.03.2013, C 415/11 

Consumers in the EU enjoy special protection, which is derived from the imbalance between two contractual partners (entrepreneurs and consumers). Directive 2011/83/EU on consumer rights is binding for all EU member states and therefore also applies to Germany. However, there are always difficulties in interpreting the directive. The ECJ is responsible for uniform interpretation. In the judgment cited, this dealt with enforcement on a consumer's property.

A Spaniard had fallen behind on his payments for a real estate loan and had not responded to numerous letters from his financing bank. That only changed when the foreclosure auction took place. He was of the opinion that the bank should not have called in the debt and certainly should not have auctioned the property. The bank is also not entitled to enforce the mortgage deed into his property.

Loan Agreement - Security Agreement - Security Purpose Declaration

This affects the question or the fact that in loan agreements to finance real estate, two contracts are de facto always concluded. On the one hand, the loan agreement is concluded, and on the other hand, the security agreement, i.e. the mortgage. As described at the beginning, both contracts stand separately from one another. This is no different in Spain than in Germany. 

However, according to the cited judgment of the ECJ, it is an abuse of law if a credit institution allows itself to be granted the right to invest in and against the property without prior discovery proceedings, i.e. without a court finding that there is a due claim and that it is also secured by the mortgage to enforce customers. According to the ECJ, this is particularly true when it comes to the family home and the consumer's livelihood. 

The legal practice criticized by the ECJ continues to be practiced in Germany. This is because the banks can enforce the claim on the property and against their customer without a discovery process / determination of the legality of the termination and the amount of the claim, even if it concerns the family home and the basis of existence. 

The ECJ examined the following on the basis of a submission deadline from the Spanish civil court: 

1. an infringement of 93/13/EEC of April 5, 1993 on unfair terms in consumer contracts

2. a violation of DIRECTIVE 2009/22/EC of April 23, 2009 on injunctions to protect consumer interests

Jürgen Bächle
Jurgen Bachle

has been working as an independent tax consultant and expert in international tax law since 1989 and has been a member of the board of the German Association of Tax Consultants Baden-Württemberg, DSTVBW, for over 20 years.

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