The breach of the duty of care of the bank in granting a mortgage loan may have far-reaching consequences for the bank, as can be seen in a decision of the “Midden-Nederland” court of 12 October 2016.
In its decision, the court argues that excessive lending was the case. Even more so, the court rules that Rabobank has severely breached its duty of care which is intended to protect against excessive lending. The result of this breach is that the client is not required to pay back the residual debt of
€ 485,599.95.
The heart of the matter
The case is as follows. In 2007, Rabobank granted a mortgage loan for the purchase of a house. Pretty soon, the client was no longer able to afford the monthly payments and, under pressure of foreclosure, the house was sold at a considerable loss. This left a substantial residual debt. The procedure was about whether the client was bound to pay the residual debt back to the bank. The client argued that there was a serious breach of the duty of care and that he would not have taken out the mortgage loan, had Rabobank warned him against excessive lending.
Duty of care bank
Even in 2007, a bank, being a professional credit provider, had a duty of care towards a private person, which intended to protect against excessive lending. This duty of care is also laid down in article 4:34 Wft (Financial Supervision Act) and applies to the pre-contractual stage, this is to say, the finance process.
This means that the bank, prior to the conclusion of the financing agreement, was obligated to check whether the client was sufficiently creditworthy, in view of his income and capital. In 2007, this general instruction was fleshed out by the joint banks in the Code of Conduct Mortgage Loans of 1 January 2007. According to the rules of this code of conduct, this mortgage should not have been granted this way.
Research by the AFM (Netherlands Authority Financial Markets) showed that, even then, other credit providers did not comply with the code of conduct as well and fines were imposed at that time.
This court ruling shows that, next to a fine, excessive lending may have other unpleasant consequences for the bank that does not take its duty of care seriously.
The client, who was assisted by Hein Kernkamp, is not required by the court to pay back the residual debt.
Information
If you would like more information on this subject, please contact Hein Kernkamp.
