French Mortgage new build problems!
More Information brought to you by FPS to help in your French Property Sale and Purchase.
Whisper it gently. The best value in the French property market is not the conversion of a ruined property or a ‘dependance' into a dwelling. The real value is in building your own large, character property. Unlike in the U.K. it is relatively easy to find a semi-rural building plot on which you can build a big house. In fact, there are some areas where there is no restriction on the size of the new house at all, and you can build the many bed-roomed houses of your dreams for fraction of the cost of a similar property in the U.K.
A couple were building a house in France and had obtained a mortgage to assist them in the process. In the course of the construction, the builder went bankrupt and was unable to finish the project. Unfortunately, the builder had not, as required by law in France, obtained a completion guarantee (‘garantie de livraison') whereby the project would have been finished by a guarantor (usually a bank or an insurance company). The builder had produced a document which purported to be a guarantee, but it turned out to be worthless. And the substance of the guarantee had not been verified by anyone during the conveyancing process. Which was bad enough news for the couple... but it got worse. It transpired that their mortgage company had given the builder their entire mortgage advance before he went bankrupt, and all their money had been spent on other projects. So they were left with a half-built house and a mortgage to pay. In effect, they were faced with paying for the same property twice.
They sued the mortgage company for failing to check the substance of the guarantee before handing out their cash. They relied on the French construction code which forbids the lender from remitting mortgage funds to a builder without sight of the completion guarantee. This provision only relates to a property built to the builder's plans rather than the buyers, which was fortunately the case here. At first instance, the court held that there was no duty on the lender to verify the substance of the guarantee. They merely had to check that some form of assurance was in place. The couple appealed to a higher court, which held that the lender had a duty to obtain, at the very least, an ‘attestation' of the guarantee. Which is a document whereby the guarantee has been inspected and attested to, usually by an official or notary in France.
And so the couple won their case, but there are clear lessons for new-builders of property in France who are using their own money to finance the construction of their new house. First make sure you receive a written confirmation from your notary that he has checked the substance of the builder's guarantee and ask him to send you a copy. If the magic word ‘attestation' does not appear on the paperwork anywhere, you should him why not. Secondly, if you are using a mortgage, ask the notary to write to your lender and say that they are not authorised to release the mortgage advance without your written authority. That way you can keep an eye on the cash flow and, if it looks like there may be problems on site, you can withhold the cash until things have looked up.
Philip Winter-Taylor