Scrap real estate: Banks liable for structural sales victims

BGH ruling confirms liability of banks and building societies A new ruling 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.


Since the end of the 80s, numerous banks, building societies and life insurers have been involved in the sale of 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 can be 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 are then shared by the parties involved (financial house, employees of the financial house and sales) 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 – but the result is kept secret according to legal regulations. It was only by chance that a special BaFin audit report 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 of the financial salesman has practically no chance of being automatically protected against sudden over-indebtedness.

Celebrities as victims – income millionaires also lose their livelihoods

Those who accumulate 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 a pipe dream. 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.

BFH ruling: 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 the processing of 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 said 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 – they claim that all insured persons are treated equally, 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 can 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

by courtesy of (published Feb 21, 2011)
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Dr. Johannes Fiala Dr. Johannes Fiala

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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