Lending Legislation and the “Catch 22”

NEW LEGISLATION REGARDING LENDERS AND THEIR INTERMEDIARIES

France continues to legislate control over the real estate industry, this time with restrictions on the lending institutions and their intermediaries, or brokers. The new laws (Code Monétaire et Financier: Art L. 519-1 à 5, Activité d’IOB; Code  de la Consommation: Art L. 321-1 et 2 / Art L. 322-1 à 3) require that those providing intermediary services to the lenders must hold specific licenses to act officially on behalf of a client and manage their confidential files. Intermediaries include: mortgage brokers, agents and introducers. To obtain the licensing, the broker must satisfy certain levels of education in France and/or work experience.

We have always worked closely with several lenders that offer loans to non-residents — at no charge to our clients for this service. The new legislation changes nothing about our ability to assist our clients in finding financing, as we can continue to recommend the lenders we feel will do the best job. The one major difference is that we no longer have the right to physically manage the file — meaning that our clients must work directly with the lenders and their agents to provide their financial data and discuss the loan products. We can, however, discuss and advise you when it comes time to make the final decisions about which loan works best for you.

For all inquiries regarding financing in France, please contact [email protected].

THE “CATCH 22” OF FINANCING: THE “CLAUSE SUSPENSIVE”

Sellers in today’s world are nervous about their buyer receiving financing and are loathe to allow what’s known as a “clause suspensive.” This is a contingency on the purchase of a property to obtain the necessary financing. When the contingency is in place, should the buyer not receive loan offers to fit with the parameters of the contingency, the property goes back to the seller, the deposit goes back to the buyer and everyone starts over. Now you can see why a seller prefers to be confident about the sale going through!

It’s all a bit of a “Catch 22,” too. The banks cannot issue a formal loan offer on a property without the signing of a pre-sale agreement, but a buyer can’t feel comfortable signing the pre-sale agreement without the confidence of having the financing. It’s a ‘game of roulette,’ however, a bank can issue a ‘loan in principle.’ This means that they can evaluate your loan application and tell you that given the information you have provided, they can lend up to a certain amount…but until all documentation is in hand and the pre-sale agreement is signed, there may still be reasons to deny you the loan.

This is just one reason why you should have your financing well in order before looking at property. At the moment of this writing, we have a client for whom we found an amazing property. Our search began at the same time as his quest for a loan, yet this special property came available suddenly without much notice. The seller has another offer from a cash buyer who is willing to sign the pre-sale agreement within one week. Our client’s offer is higher, but needs financing to complete the purchase.

We are all scrambling to get the loan application in so that at least one bank can make a value judgment and our client can feel confident enough to proceed with the purchase. We are juggling to keep a balance of the issues and take as little risks as possible.

We urge you to start the financing process early. You can contact the lenders we recommend by visiting our Web site and contact them directly for more information — just be sure they know Adrian Leeds Group referred you!

A bientôt,

Adrian Leeds
Director of The Adrian Leeds Group, LLC

Respond to Adrian

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P.P.P.S. Mark your calendar for next Tuesday, March 12th when David Burke, author of “Writers in Paris: Literary Lives in the City of Light” talks about “Bad Boys and Bad Girls of Literature in Paris” at Parler Paris Après Midi — 3 to 5 p.m. at La Pierre du Marais. It’s free and it’s fun! Visit Parler Paris Après Midi for more information.