Dealing with debt
Julia Jones explains how the repossession process works in France, and why burying your head in the sand is the worst approach.
In these unhappy times, our law firm is receiving a growing number of enquiries from clients who are facing repossession and forced sale of their house by the bank because they cannot keep up with mortgage repayments. The legal procedure in France is lengthy. It can take up to three years from the time the bank initiates legal proceedings to the end of the procedure (i.e. the forced sale of the real estate at public auction). The ‘ostrich tactic’ (i.e. ignore it and hope it will go away) is the worst strategy that a debtor can adopt. Below is a brief description of the procedure. However, all is not doom and gloom, different forms of recourse, discussed later, are available to the debtor.
The procedure
The forced sale procedure is initiated when a bailiff serves the debtor with a document ordering them to pay the sums due, as ordered by the court. This document is called a commandement. It, and most of the ensuing paperwork, will be published at the local land registry. Therefore, if the debtor attempts to sell their property during the procedure, the notaire in charge of the sale will discover the existence of the forced sale procedure when they carry out the compulsory searches associated with the sale. Once the commandement has been served, the debtor generally reserves the right to continue living in the property, but can no longer sell it without the creditor’s approval. At this point, the debtor should ask a French solicitor to assist them during the procedure. The debtor cannot intervene personally – only via their solicitor. The bank’s solicitor will then draft a document entitled cahier des charges, which fixes the conditions of sale. This is filed with the local court and the debtor is formally invited to read the conditions of sale and formulate any observations. The general public can also consult this document. A bailiff will visit the property in order to establish a description which will be inserted in the cahier des charges. The cahier will also contain a minimum sale price for the forced sale. The final auction will be organised between 30 and 60 days after the initial audience. Any person may ask for the property to be reauctioned within a period of 10 days of the first auction if that person is prepared to pay at least an additional 10% of the price obtained at auction.
Keep the bank informed
Before forcing the sale of a property, the bank has to obtain a judgment ordering the debtor to reimburse the sums due to the bank (often, the reimbursement of the mortgage plus the penalties contained in the loan contract). Prior to obtaining this judgment, the bank will often serve formal notice on the debtor to pay, then a summons to appear in court. The debtor will be given the opportunity to defend their case. If the bank wins its claim, it can proceed with the forced sale. A certain number of formal documents will be served on the debtor, inviting them to participate in both procedures (the initial claim made by the bank and the forced sale). Some debtors hope to avoid paying their debts by changing address (or changing countries!). If, however, the debtor owns property in France, this strategy will not work. Under French law, service of documents is considered effective if served at the last known address.
Negotiate with the bank
In almost all circumstances, banks are open to negotiation. If possible, it is always advisable to contact the bank and to negotiate the repayment schedule. Negotiation should be implemented earlier rather than later. Obviously, as the legal procedure continues, the bank will incur costs (solicitor’s fees, bailiff’s fees, disbursements etc). The bank may also want to include these costs in any agreement reached with the debtor. Stopping the procedure in the early stages will obviously reduce these costs. If no negotiation with the bank is possible, then it is always better to cooperate with the forced sale procedure.
Cooperate during a forced sale
Obviously the forced sale procedure is particularly unpleasant for the debtor. There is a certain amount of unwanted publicity associated, for example, the date of the auction must be published in the local press along with the identification of the property, the debtor and the creditor. A notice will also be put up on the house to be sold, as well as on the commune’s official notice board (this is often just outside the local town hall). Prospective buyers may want to visit the property and visits will be organised by the bailiff. Although it is painful, it is far better for the debtor to facilitate the bailiff’s task by showing the public around the property and accepting the publicity, because ultimately more people will be informed about and interested in buying at auction, thus pushing the price up.
An amicable sale
Although, after the commandement, the debtor is no longer free to sell the property on the open market, they may continue negotiations with prospective buyers. If a buyer makes a reasonable offer, this may be communicated to the judge, who may decide to halt the forced sale. This can be done at almost any stage during the procedure but obviously, the earlier the better. The judge will only accept an amicable sale if they consider the offer to be serious. The judge’s decision may be swayed if the buyers are prepared to deposit a percentage of the sale price into an escrow account to prove good faith.