In one well appointed resort located in Languedoc in the south of France, the holiday season has begun and the pool is noisy with splashes and the restaurant humming. This is a Résidence de Tourisme (RdT) which on the surface looks carefree (‘insouciant’ if you will).
However, if you talk to most of the owners they will tell you that they purchased leaseback properties here with a love of France, but have found little to be ‘amour’ with ever since. Indeed it has taken owners quite a while to realise just how stung they’ve been. Many only realised last year that the lease they signed for 9 years in fact goes on forever.
But, there are a number of owners who would probably remain quiet. These owners are French banks.
The French banks lent money to Irish and UK purchasers to finance these pretty, but highly overpriced, properties like it grew on trees. These purchasers signed documents for the Notaire and had little, if any, direct contact with banks. Until they couldn’t pay the mortgage that is. The pattern of owners defaulting is a familiar one and all because the ‘guaranteed’ rent they had been promised disappeared. Then the banks reared up. Properties were re-possessed and sold for a fraction of the purchase price leaving a large mortgage hole, which the owners in many cases could not pay. Typically, these banks then sell the debt on and the owners are then faced with debt collectors and threatening letters to their home.
Credit Immobilier de France (CIF)
A number of the properties in this resort it would seem are owned by Credit Immobilier de France (CIF). Indeed the other French banks were not shy either, and it appears that Credit Foncier own a number, as do BNP Paribas. But there was an interesting article in Le Monde last week which singles out Credit Immobilier de France. And it is not surprising that this bank is mentioned in the same breath as the largest real estate fraud in France, L’Affaire Apollonia.
Almost nine years and three examining magistrates later, the case rebounded last January, thanks to a judgment of the Court of Cassation, which led the Marseilles magistrate, Valery Muller, to resume the investigation, in particular concerning banks . Already 32 indictments were handed down: that of manager of Apollonia, John Badache, its sales executives, three notaries, representative of the loan broker Cafpi and executives of various banks, Crédit Mutuel Mediterranean and especially Credit Immobilier de France (CIF) and its Rhone-Alpes subsidiary.
According to Jacques Gobert, the lawyer representing the association of victims of Apollonia (ANVI-Asdevilm, which has 400 members):
The CIF has consistently over-indebted customers, despite repeated warnings from the banking supervisor.
In 2012, following the degradation of its rating by the Moody’s agency, Crédit Immobilier de France was put under a “resolution plan”, a quasi-liquidation. The French state was then obliged to intervene and guarantees a maximum amount of 28 billion euros, until 2035 if necessary.
According to Le Monde:
The CIF is setting aside EUR 300 million of doubtful debts related to Apollonia’s customers, ie 15.5% of its total doubtful loans, which is significant, as the Court of Auditors and Finance of the Sénat , Senator François Marc (PS), in two reports, published in September and October 2015, respectively.
For Irish and UK leaseback owners, it seems that they are not alone..
Fédération Bancaire Francaise
And what do the the French Banking Federation have to say about the leaseback scandal ? Brian Hayes MEP sent them a letter to find out.
Benjamin Quatre, Director of European and International Affairs responded that the banks too consider themselves victims of this leaseback scandal !
They emphasised that they were legally prohibited from commenting on these schemes with respect to the individual involvement of their members.
It is important to note that all aspects related to taxes, profitability of the investment, explanation of the legal set-up prior to the purchase, and conditions of purchase of the property are not under the remit of the banks’ responsibility.
The latter decide to loan after having checked the solvency of the borrower.
In most cases the owners were clearly intending to repay the mortgage from the ‘guaranteed’ rent. In one case, the owner did not even have a job.
Are the French banks victims in this ?
Or did they know that they were lending to Irish and UK consumers who had been sold the leaseback package where the ‘guaranteed’ rent was key to the selling and financing of the property, where the rent was clearly to be used to repay the mortgage ?
Did they know they were lending on an overpriced asset ?
Did they in fact lend without any professional due diligence on what they were lending on?
Did they continue to lend even though issues had been raised in France on the viability of these leaseback propositions ?
In our example resort in Languedoc, I don’t believe there were any purchasers from Languedoc. The properties were overpriced, they were situated in a rural, undeveloped area with no tourist facilities. This local knowledge was not known to foreign investors, but was it known in that part of France ? Was it known to other stakeholders, such as the French banks ?
Let’s look at another French bank, Credit Agricole du Languedoc.
Credit Agricole du Languedoc
This screenshot from 2014 shows how this bank was actively marketing mortgages on French investment properties to English-speaking consumers. It appears that the page was removed in 2016.
It links directly from this English language site to a property site called French Property Centre (see on the left of the webpage). This link was live on the Credit Agricole website until Apr 2016 (according to www.web.archive.org).
French Property Centre, a UK registered company, continues (as of July 2017) to promote leaseback property with misleading information and invalid promises.
Despite all the issues reported by purchasers, all the bank re-possessions, they continue to promote without warning:
“Leaseback is a French Government backed scheme which allows you to buy a new property in designated regions of France and be refunded the 19.6% VAT! You own the freehold on the apartment or cottage and it is leased back to a reputable property management company for a minimum of 9 years.
Your investment yields a guaranteed annual return of up to 4.5%, you have a fully maintained and managed property – and have a personal usage option.
It’s an investment vehicle you can enjoy and which is working for you when you’re not there!
Main features of a leaseback property:
• A freehold, fully furnished property
• Investor entitled to benefit from the 19.6% VAT rebate
• Property leased to a reliable management/ tourist company for minimum 9-year period
• Investors receive index-linked, guaranteed annual return of up to 4.5% with options for personal usage
• No running charges or maintenance costs”
- The investment is not ‘backed’ by the French government in any way
- The property may be ‘freehold’ but is in a commercial lease which is not for 9 years but goes on forever under French law no matter what it says in the lease, unless you pay eviction compensation
- There is nothing ‘guaranteed’ about the rent.
- You will be hit with all kinds of taxes, ‘charges’ and maintenance costs’ from bins you never used to water you never flushed down a toilet (for you have no access to said toilet..)
- The ‘reputability’ of many French companies managing these would make you weep.
Are the French banks the victims here ?
Or was there reckless lending to gorge their mortgage loan book on hapless foreign consumers ?
I’ll let you decide !
Many thanks to Google Translate