Banks liable for structural sales victims of the building society trap
BGH ruling confirms liability of banks and building societies
A new decision of the Federal Court of Justice (BGH ruling of 29.06.2010, Ref. XI ZR 104/08) obliges banks and building societies to provide unsolicited information to the borrower if a fraudulent deception of the buyer about the amount of the brokerage commission is apparent. If this information is not provided, the financial institution shall be liable to the credit customer for damages on account of its so-called knowledge advantage.
Junk Real Estate
Since the late 1980s, numerous banks, building societies and life insurers have been involved in the sale of vastly overpriced real estate. Estimates suggest that the number of people affected is now likely to be in seven figures. At the same time, it is repeatedly heard from insiders that individual persons of competence have also enriched themselves personally. It is therefore not surprising that the sales prices may have been two to five times the market value. Often a brokerage commission of about 6% was pretended to the customers, while in reality more than 15% flowed to the intermediary – as in the recently decided BGH judgement. In practice, however, there may also be 40% “soft costs”, which the parties involved (financial house, employees of the financial house and sales) then share on a fraternal basis.
No help from BaFin
Some credit institutions were reported to the public prosecutor’s office (StA). The StA then asked BaFin for a special audit – the result, however, is kept secret according to legal regulations. It was only by chance that a special audit report of BaFin came to public attention and promptly led to the sentencing of a building society to pay damages. Numerous dropouts from junk real estate sales reported on institutional cooperation with financial houses. It is not uncommon for banks and building societies to know exactly how overpriced the property is because they determine the value for lending purposes. But credit institutions also almost always keep this information secret. The buyer infected by the tax-saving instinct thus has practically no chance of being automatically protected from sudden over-indebtedness.
Even celebrities lose existence
Those who pile up large debts by investing in real estate are commonly referred to as mortgage millionaires. This illustrious circle includes not only bakers, butchers, innkeepers – but also tax consultants, notaries, doctors, athletes, lawyers and actors. In Munich, for example, a “notary and president of the Bavarian Yacht Club” was removed from office after a major bank filed for insolvency. However, overpriced properties were not only brokered in the flourishing landscapes of the East, but also from numerous regions of the old federal states.
Financing traps due to commission maximisation
Expensive surprises also regularly await investors if financing is provided via a fixed loan. For redemption, mostly life insurance policies, but also investment funds were additionally brokered. If the hoped-for increases in the value of these investments did not materialise, or if losses were incurred, then the pretty sample calculations of the intermediaries turned out to be
Reverie. As one building society customer put it, “I was advised into the ground”. The credit expert Jens Leschmann knows from numerous damage appraisals the situation that investors had invested for example 150,000 euro into real estates and after 10 years a total loss of the double, thus of approximately 300,000 euro was expertly to be determined.
Enforcement of damages is tax deductible
According to a recent ruling by the Federal Fiscal Court (Bundesfinanzhof, BFH), anyone seeking compensation for damages or a “realignment of the financing concept” can deduct the costs of their advisors as income-related expenses for tax purposes (BFH ruling, Ref. IX R 47/08). It is even better to seek professional advice before making investment decisions, because these costs can also be claimed against tax – and investment losses are avoided. In addition, experience shows that precautionary advice often costs less than 10% compared to the situation when the child has already fallen into the well.
Life insurance policies put to the test
In processing the possible claims of the injured party, surrender value settlements of life insurance policies and settlements of loans must also be put to the test. A BGH judge recently commented that life insurers should know how the BGH judges a case, and customers should know about it – at the latest when they consult an informed lawyer.
Life insurers do not correct incorrect settlements without being asked to do so – in doing so, they invoke the equal treatment of all insured persons, even if this means that everyone is treated equally badly. It could be that the address of some customers can no longer be found, and these would then be the only ones not to receive their money back – such unequal treatment, which could be challenged under supervisory law, must be prevented by ensuring that no one receives anything without being asked.
Banks are not behind here when they miscalculate loans. Injured parties will learn of their rights from their lawyer, provided they consult him – an actuarial expert or a credit expert, on the other hand, will have to do the math.
by Dr. Johannes Fiala and Dipl.-Math. Petr A. Schramm
by courtesy of
www.handwerke.de (published in Computers in Crafts 04/2011, pages 4-5)
and
www.tabakzeitung.de (published in Die Tabakzeitung No. 10 under the headline: BGH facilitates reversal of overpriced investments)
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About the author
Dr. Johannes FialaPhD, 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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