Backgrounds and legal foundations
Not only movable goods can be bought and sold, but also contractual contracts are available for sale. A credit sale is generally understood when a bank where the customer takes out a loan sells the receivables. So something is called therefore also sales of receivables. This option offers the bank the opportunity to quickly restructure its balance sheets in times of financial hardship and to refinance cheaply and quickly.
Credit sales are allowed and occur more often in the real economy than you think. The debtor does not have to agree, his contract terms remain unchanged – only the creditor is another. The legal basis for this business can be found in the Civil Code.
Sale on late payments and US real estate crisis
If the borrower defaults on his payments, the bank may sell the mortgage contract and thus have a problematic contract less. In the past, funds often bought these contracts, with the intention of turning the real estate into quick money.
After expiry of the fixed interest period, when a follow-on financing had to be renegotiated, the funds insisted on an immediate repayment of the remaining debt. Since only very few people had the necessary change at hand, the investors resorted to the property and obtained a foreclosure. Thus, the borrower could lose home and farm terribly quickly.
The sale of mortgage bonds to international funds is strongly reminiscent of the economic crisis triggered by the US housing crisis. Banks sold en masse contracts: they bundled both good and bad loan contracts for parcels and sold them to international funds. If the customer repaid the loan, the profit was enormous. Those who did not pay had to stick with their secured house, which was foreclosed.
The system collapsed when initial demands were made that borrowers could not afford: many of the contracts were of inferior quality, meaning people were getting a mortgage they could never fully repay. In addition, as the real estate market eased and house prices fell, the packages drastically lost value.
Introduction of the Risk Limitation Act
Even though the situation in Germany was not as bad as it was in America or other countries, it was unacceptable in the long term. The legislator, therefore, passed the so-called risk limitation law in 2008. This law does not prohibit the sale of credit itself or foreclosure by the buyer, but both have been made more difficult: banks must explicitly refer to the possibility of selling credit in their contract. If the bank decides on the receivables, it must inform its customers.
- The bank can only sell the contract if it informs the customer of this possibility at the signing of the contract and makes explicit reference to it.
- The buyer of the loan must inform the customer immediately after the purchase that he is now a creditor.
- Extraordinary termination by the creditor is only possible if the debtor is in arrears with at least two consecutive payments and, in addition, the outstanding sum amounts to at least 2.5 percent of the total loan amount.
- Banks are required to submit a follow-up offer no later than three months before the end of the fixed interest period or to inform the borrower that they wish to sell the contract.
- If the buyer of the contract unjustifiably submits a foreclosure, he makes himself liable for damages.
Validity only for contracts after 2008
The Risk Limitation Act applies only to contracts concluded after 2008. For previously closed it does not apply.
Securing contracts signed before 2008
Even though the Risk Limitation Act applies only to contracts concluded after 2008, the older contracts are not wholly “defenseless”. The BGH ruled in 2010 (AZ: XI ZR 200/09) that in the event of imminent foreclosure, it must of its own motion be checked whether all rights were also acquired with the contract.
This means that the magistrate, even without having a concrete suspicion, must examine this fact. If he concludes that the law of foreclosure has not been sold, it may not be enforced, even if all other conditions are met.
Termination of loans by the bank
The bank, or the buyer of the loan, is not entitled to terminate the contract during the fixed interest period-direct lender payday loans for you. This possibility is prohibited by law. It only has the right to an extraordinary termination if the customer is in default of payment.
In the letter of termination, the bank must set a deadline in which the outstanding debts can be settled. If this deadline has passed without effect, the enforcement can be obtained.
This is how you can protect yourself
If the borrower does not default on payments during the fixed interest period, foreclosure can be prevented. If you pay punctually, you do not have to fear negative consequences. In addition, there are some tips to keep in mind to avoid unwanted loan sales.
Exclude sales of receivables
To rule out the risk of selling credit from the outset, you can have your bank sign an agreement in the contract that prohibits it. However, a few banks charge fees for this arrangement; Again, other banks advertise with the exclusion, since you promise you as a borrower by this more security.
Therefore, ask your bank before concluding whether and on what terms a sale of receivables can be excluded. Possible, for example, interest premiums of 0.2 percent.
Make realistic monthly payments
If you always pay on time for your regular installments, the risk of selling a loan is relatively low. Often only bad loans are sold. It is all the more important that you assess your monthly resilience realistically – and do not overestimate monthly payments.
Address payment problems early
Should you, as a customer, experience temporary payment difficulties, it makes sense to contact the bank early and make an agreement. Usually, banks are accommodating because they have an interest in settling the debt.
Check framework conditions
If there has already been a sale of receivables, you can check whether all legal requirements have been met. For contracts from 2008, the Risk Limitation Act sets further conditions for the credit seller. Among other things, as a borrower, you must have been explicitly informed of the possibility of selling the receivable when the contract was signed. In addition, the buyer must inform immediately after the purchase that he is now the new creditor.