This report looks at the way that a purchase works at the different stages when being financed by a mortgage secured against the property being purchased in France, and outlines some of the pitfalls and issues that can arise as well as cost implications.
Before viewing property
It is advisable to discuss financing options prior to viewing properties. Firstly, this will give you an idea of your budget and likely expenditure; secondly, providing information to lenders early will speed up the actual mortgage application process.
First contract stage
The grant of the mortgage should be a condition precedent (condition suspensive) of the first contract (compromis or sous-seing privé). If the mortgage is not granted, you can withdraw from the purchase with your deposit returned.
The following points should be noted:
*It is usually a condition that proof that the mortgage application has been made is to be provided within 15 days of the contract and you should ensure that you comply with this. The proof can be provided by means of an ‘attestation’ from the lender to this effect. If you insert the condition into the contract and then do not make an application, the vendor could oppose the return of the deposit if you do not complete.
*There is usually a deadline for the grant of the mortgage in the first contract. This must be a minimum 30 days from the date of the contract. A realistic deadline is normally two to three months for a non-French resident. What occurs when this deadline is passed will depend in part on what the contract itself states but you should endeavour to respect it. The deadline can be extended with the agreement of the other party.
*You will need to provide much detailed information to the lender. For those in employment, banks will typically require your last three payslips, statement of bank accounts going back three months, the last tax return, full personal details of each borrower e.t.c. For those who are self-employed, the process is potentially more complex. This should be borne in mind in the context of what is stated above concerning deadlines.
*A life insurance policy to the benefit of the bank will in almost all cases be required. For people of a certain age or with health problems, enquiries should be made as early as possible to ensure that the obtaining of life insurance will not pose a problem. Certain borrowers will be required to undertake medical tests, ranging from a simple health check by your doctor to electro-cardiograms and blood tests (for those borrowing larger amounts or who have declared a health problem on the obligatory ‘questionnaire de santé’). It is often the life insurance that can lead to lengthy delays and it is often overlooked until the final stages. Note that it is possible to obtain life insurance from an insurer other than that proposed by the lender. However, this complicates the matter and you should organise this in advance to prevent delays.
The mortgage offer
You will receive a written mortgage offer once all the formalities have been completed and the bank agrees to lend. Following receipt of the offer, you legally cannot sign for ten clear days. This means that you will need to wait eleven days to accept the offer. The acceptance is to be sent back to the bank by registered post. Again, this should be remembered when organising the completion date. If sufficient time is not allowed, the sale simply cannot complete.
There will be a deed (acte authentique) for the mortgage, often included in the body of the completion deed (acte de vente). This specifies the terms and conditions of the lending and provides the bank with its security so that it can recover the debt in the event of failure to pay.
*The bank liases with the notaire to approve a copy of the deed. Once this is done and, if applicable, the notaire has received your contribution towards the price, draw-down of the mortgage monies will be requested from the lender. Draw-down itself takes at least 24 hours so needs to be factored into the timetable.
*If you cannot be present to sign the mortgage deed, a power of attorney can be organised so that the deed can be signed on your behalf. However, this power of attorney should be in ‘authentic’ form which adds an extra level of complication to the legalisation of the power. For those resident in the UK, this means signature in front of a notary public or solicitor and then the 'apostille’ (stamp) inserted by the Foreign and Commonwealth Office or alternatively signature in front of a French consular representative with notaire’s powers. The power cannot be drafted until details of the mortgage are known from the mortgage offer meaning that it often arrives very late in the day.
*The bank will in most cases require all those who are borrowing to be a party to the mortgage either as full borrowers or guarantors (cautions). When the application is made, it is therefore important to include all parties to the actual purchase. This can sometimes be overlooked and later rectification may lead to increased costs and delays (and even a refusal to lend if one of the parties is unsuitable). Banks can lend to SCIs (French property holding company) but the offer will normally need to be in the name of the SCI (the offer can usually only be made once the SCI is duly registered, therefore in the SCI/mortgage scenario, the SCI must come first).
The costs of an individual mortgage will need to be ascertained from the lender. However, you should note that in addition to other costs, the registration of the mortgage security attracts an additional fee charged by the notaire. This is typically 1% of the amount borrowed and it is usually not possible to calculate this until the end when the full details of the security required by the lender are known.
© Headdon Consulting
Headdon Consulting is a French registered company offering independent legal advice and assistance to English speaking people around the world who are purchasing, selling or own real estate property in France, whether it be a holiday home, a principal residence or in connection with a small business.
Headdon Consulting Sarl