Doorstep Selling Act: The ECJ Decision

by Johannes Fiala, lawyer
Hundreds of thousands of investors in unprofitable investments have the chance to reclaim all interest and redemption payments to date. Many lending institutions have provided sales people with their loan forms in recent years. These salesmen then sold the mortgage-backed loans (or fund shares) to the investors at home. A revocation instruction, as required by law, was not given to the consumers. In December 2001, the European Court of Justice (ECJ) ruled on this form of doorstep selling. To find out if you, too, have a chance to get your money back, read the following post:   Doorstep Deals with Real Estate Investors I. The ECJ decision The Doorstep Selling Act and an imminent decision by the European Court of Justice may result in losses for the credit industry and fund initiators. The European Court of Justice followed its Advocate General Philippe L�ger. This gives hundreds of thousands of investors the chance -to free themselves from their complete credit debts and -to reclaim all interest and redemption payments to date ! What is it about ? Many lending institutions have been providing sales people with their loan forms for the past 10+ years. The salesmen then sold the mortgage-backed loans (or fund shares) to the investors at home. A revocation instruction, as required by law, was not given to the consumers. The EU Directive on doorstep selling (Rili 87/577/EEC and 87/102/EEC) states that the customer who has been persuaded to conclude a contract in a “doorstep situation” must be informed of his right of withdrawal. The German legislator has stipulated in the Haustürwiderrufsgesetz that the right of withdrawal expires after one year. The BGH was not sure whether this implementation by the legislator was correct. The Advocate General at the European Court of Justice sees the matter in such a way that the instruction about the right of withdrawal is an indispensable obligation to succeed. Then the German legislator could not limit the right of withdrawal to one year, otherwise consumer protection would run dry. The defendant HypoVereinsbank submitted to the European Court of Justice that the application of the Doorstep Selling Act to real loans (i.e. loans secured by land charges or mortgages) ‘represents a considerable financial risk for credit institutions’. The HypoVereinsbank sees this quite correctly: Because with it then “damaged” investors, who financed their investment into a fund or a real estate by a mortgage loan, can leave it in the future to the bank whether these want to get themselves the money of the – unknown moved mediator – the insolvent initiator or developer, etc. again. In any case, the investor can get rid of his loan debt to his bank with the stroke of a pen: revocation under the Doorstep Selling Revocation Act is the magic word. With its decision, the European Court of Justice could help to rehabilitate hundreds of thousands of “over-indebted investors who feel they have been deceived”. Insofar as retroactive application to the credit industry is ruled out, the question of state liability arises: the state had already been sued in the area of travel law because European law had not been fully implemented in time in German law. The Advocate General at the European Court of Justice opposes HypoVereinsbank: It is not the type of transaction (real estate loan) that is at issue, but the manner in which the contract was concluded. This means that the “borrower taken by surprise by a doorstep situation and not informed of the right of withdrawal” may refuse to pay the bank at any time. The decision of the European Court of Justice from December 2001 fits well with the line of the BGH: By its recent decision (II ZR 304/00) it was clarified that with the installment purchase of fund shares in a Haustürsitution the revocation period can still exist after 10 years, if about the revocation right had not been instructed and the investor still pays in installments over a Treuhändern to the investor.
II. possibility for concerning The house door revocation law offers the possibility to the concerning still after years to separate from unprofitable investments. This frees up liquidity that can then be invested more sensibly.
The applicability of the doorstep-selling revocation statute requires that the situation be a doorstep situation. This is understood to mean, -an unsolicited visit to a private home or place of work, or -an approach in means of transport or on public thoroughfares. Typical example: A “Strukki” visits the consumer at his place of work and has the subscription of a fund and in addition the financing signed as a loan. The new decision of the European Court of Justice on real estate credit: According to the European Court of Justice, real estate credit contracts (land charge and mortgage loans) are also covered by such contracts, because the credit is a personal right and not a right in rem ! The right of withdrawal expires according to German law two weeks after the written instruction: If no instruction is given, this right expires according to the law within one month after “complete performance”. In plain language: As soon as the loan is disbursed, the right of withdrawal would expire within one month even without instruction. In the opinion of the Advocate General at the European Court of Justice, the German legislator has incorrectly implemented the EU Directive: The aforementioned one-month period is therefore irrelevant. In plain language: Anyone with a mortgage loan who has not been informed in writing about their right of cancellation can refuse the bank any payment. It is then up to the bank to get the money back from the “insolvent” initiator or the “for lack of assets already deleted” property developer GmbH. Credit instalments already paid by the consumer must then be refunded to the bank customer: The ECJ has ruled on the case of a land register security.
III. further already decided cases The house door revocation law offers to the investor still after years the possibility of separating from unprofitable investments. This frees up liquidity that can then be invested more sensibly. By the following upper-judicial iurisdiction to the Haustürwiderruf banks, initiators etc. were already condemned (about it the EuGH does not decide today – the concerning can argue with it directly): a) Purchase of a mutual fund on installments in a doorstep situation: Which financial advisor does not visit his clients at home to chat in a pleasant atmosphere ? Risk of the initiator: As long as the instalments (“savings plan”, etc.) are still being paid (no complete performance), the revocation can be declared. This is what the consumer does when the investment has not performed as expected or prospected. (b) guarantee by a consumer of the consumer credit of a family member or friend: Occasionally a guarantee is sold on the basis that it is a mere formality. The only correct thing about this is that, for the sake of form, the right of withdrawal must be instructed. Bank risk: the guarantor can revoke at any time and the bank loses collateral if the borrower can no longer pay. c) Obligation to create a land charge: In the countryside and in private banking one visits the customer – entrepreneurs often have little time and do not want to travel to the bank in their free time as well. If the bank customer signs during the house visit of his banker that he will order a land charge, this is also revocable at any time without instruction. Risk of the bank: The loan security should be strengthened – but the home visit was completely in vain. d) Contracts are also often initiated on coffee trips, sales events in hotels with hospitality or as trial holiday offers: The time-sharing industry has known the rules of the game for years: Without a cancellation policy, nothing works here anymore. Risk of the initiator: Contracts concluded at sales events or during trial holidays can be revoked at any time without instruction as long as full performance has not been rendered – and this can often take years in the case of “instalment plans”. e) Even if customers ask for a non-binding offer or if an appointment for a home visit is made as a result of a telephone marketing call, a cancellation notice must be provided. Risk of the seller: The contract has to be completely unwound after the revocation. f) A subsequent notarial certification of the loan agreement does not help either: A nice trick would be to omit the revocation instruction and to have the loan agreement subsequently notarised. This does not help the bank either, because consumer protection would run dry if a (moreover, otherwise superfluous) notarial certification were to help. Risk of the trick seller: Reversal also here. g) Bundles of contracts are often offered as an “all-round carefree package”: For example, life insurance policies are often coupled with loans, or equity investments with loans. If the revocation instruction is missing, the consumer can withdraw from the investment contract. Risk of the bank: The consumer can refer the credit institution to the initiator, because only the initiator (and not the consumer) has received the money from the loan. And another risk: If you have not been informed about the special risks of the combination of loan and life insurance (it can be much more expensive to finance this way, even if brokers say otherwise – a special program can calculate it ! ) a reversal can be demanded by the bank also for this reason. h) Real estate contract bundles have been popularly brokered as distance business, especially in the last 12 years. The consumer buys a home, has never seen it (it ends up not being worth much either) and finances the purchase with a mortgage loan. The risk of the bank has materialized: according to the request of the Advocate General of the European Court of Justice, the consumer can revoke his loan contract. An unsigned or missing cancellation instruction in the loan contract can still cost the credit economy billions. For the buyer in particular of scrap real estates the new judgement offers the chance for the reorganization of the financial situation ? at least by negotiation and without years of litigation. In its 2002 ruling, the Munich Higher Regional Court (Gz. 20 U 2836/01) rejected Deutsche Bank 24’s claim for loan repayment and referred to the ECJ ruling: Accordingly, the credit institution has no claim to loan repayment after the declaration of revocation by the bank customer.

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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