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                      WITHOUT MY KNOWLEDGE!


Some of our clients have been paying the monthly instalments of their mortgage in the same way they always had, i.e. by direct debit from the account chosen to such end, and there have been cases where they were not aware that the mortgage creditor (the bank or financial entity that granted them the loan) had sold the credit to another bank or financial company.

This has been happening very often of late owing to the banking and financial system crisis. Thus, we have seen how banks have transferred their mortgage credit portfolio to a company of the same group or to other companies – sometimes very aggressive – of the sector, and many a mortgagor was not aware of this until they made the decision to sell their property and needed to pay off the mortgage. The first question that always arises is whether or not this is legal, or whether the way it has been done is legal, i.e. without the debtor’s consent or even without their knowledge. And after answering ourselves that it must be legal if they have done it and we will therefore have to accept it, we wonder whether it is beneficial or detrimental. Banks and other financial entities usually include a clause which expressly allows them to assign or transfer the mortgage without the debtor’s consent and which normally also provides in an express manner that the debtor may not assign the mortgage to a third party, i.e. “I, the Bank” can assign my position as creditor but you, as debtor, cannot. Is this legal? It certainly is, even if such express clauses were not included in the mortgage loan contract. And there is one reason it is legal, i.e. that the conditions of the loan will not change if the creditor changes and this does not appear to be detrimental to the debtor as the latter has obtained the money and has to pay it back in any case, originally to the creditor and now – on the same terms as those originally agreed – to the assignee. So why can’t the debtor do the same thing? The reason is that the money is owed by the debtor, to whom the bank granted the loan because it relied on their solvency. The opposite may result in a mortgage debtor selling their house to an insolvent person who would therefore stop making the payments. Therefore, according to the clauses of the mortgage loan contract, the creditor – i.e. the financial entity – may without the debtor’s consent transfer the mortgage credit to a third party, and they may also do the same in default of such a clause. The obligation does exist, however, to notify or inform the debtor of the assignment of the credit and, therefore, of the identity of the new creditor. What happens if they do this? The transfer of credit continues to be valid, but if this is not notified to the debtor, then the payments made by the debtor to the former creditor will continue to be valid until they are somehow or other informed of such an assignment. The credit assignment is normally notified to the debtor, but if this does not happen in some cases it is because the assigning bank and the assignee bank or financial entity determine that the payments will continue to be made from the same account which the debtor had appointed for these payments and they thus save the notification costs. Some mortgage borrowers will probably feel less comfortable with the new creditor entity, which may be more strict if the debtor fails to honour the payment dates or any other conditions. But this does not provide legal grounds to oppose as the new creditor may be more strict in demanding that the agreed conditions be met, but they may not demand anything other than what was originally agreed and may not impose more severe penalties than those originally agreed on. It is important to take this into account, and the new creditor may not demand that the debtor communicate with it (I mention this example because it has happened) by making very expensive phone calls to a New York number…

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