by Johannes Fiala, lawyer
The Federal Court of Justice (BGH) has strengthened the rights of condominium owners who have concluded the purchase of their property and the associated loan agreement in a “doorstep situation” (XI ZR 91/99). According to the ruling, homebuyers can revoke their loan indefinitely if they were not properly informed of their right of revocation. The BGH thus ruled in favour of the owner of a condominium who had been visited at home by an estate agent and persuaded to buy the property and take out a loan. What is at issue? Particularly in the 1990s, numerous German citizens had purchased overpriced apartments through 100 percent bank financing. The formula often used by agents – the apartment pays for itself through tax savings and rental income – rarely corresponded to reality. Consumers who have concluded purchase and loan agreements at home, on public transport or at work are now allowed to cancel the loan agreement. The bank cannot therefore rely on the fact that the customer later signed his loan agreement in the counter. What does that mean? If there is a contract bundle of real estate purchase and financing, the consumer can cancel the contract completely. He can therefore – immediately refuse the further or remaining payment of the loan, – demand all interest and redemption payments back from the bank, – in return, however, he must leave the resulting benefits (for example, the rent) and the often worthless apartment to the bank. However, there are also exceptions The Federal Court of Justice has clarified that an effective revocation of the loan does not always mean a complete reversal. If only the loan is reversed, the real estate buyer also saves a lot of money, because then the high interest rates and the compound interest effect are omitted. The courts here regularly set four percent interest without compound interest as an appropriate compensation for use of the revoked loan. Moreover, investors should not forget that there are other parties involved besides the bank (seller, initiator, distributor, intermediary) from whom they can claim damages. Consumers should therefore carefully examine the facts of the case before filing a complaint. In any case, all negotiation options should be exhausted, as this saves time and money in most cases.