The Mortgage Loan Act – unclear banks’ obligations and consumers’ rights in Poland

The Act on Mortgage Loan and Supervision over Mortgage Brokers and Agents of 23 March 2017 (hereinafter the “Act”) introduces significant changes in the Polish consumer market with regard to the granting of mortgage loans. The main purpose is to ensure greater protection of those who take mortgage loans. Experts, who monitor the development of the real estate market, very positively assess regulations applying to mortgage loans. However, some of the provisions give rise to a lot of doubts.

Unclear scope of costs refunds to consumers

Definitely, the costs paid directly to the bank, e.g. the arrangement fee for consideration of a loan application or the commission fee for granting mortgage loan, should be returned to the consumer. However, questions arise, if the costs related to the mortgage loan, but incurred for benefit of other entities, should also be reimbursed (Article 15 of the Act). In such category there can be costs incurred for benefit of persons co-operating with the bank, e.g. during real estate valuation or the costs collected by the mortgage agent. Charges that may be borne by the consumer also include court and administrative fees, i.e. the fee charged for the extract from the land and mortgage register, for filing an application for entry of a mortgage or for the issuance of an extract from the land register (the provision also applies to costs incurred after the conclusion of the credit agreement, and the documents mentioned above constitute the standard conditions precedents of mortgage disbursement).

Vague wording regarding the scope of costs may leave room for abuse. For instance, a customer who had ordered a valuation on the market, and then submitted this valuation to two banks prior to the planned conclusion of the mortgage loan agreement, could seek reimbursement of the costs of this valuation from both these institutions, if the agreement was not concluded or if the mortgage loan was not disbursed.

Paradoxically, the lack of clarity as to which costs can be subject to reimbursement is also to the consumer’s disadvantage. For example, the consumer may incur certain expenses expecting they would be reimbursed, but afterwards the bank may oppose to such reimbursement.

Mortgage loan recovery – how to sell the property?

The 6-month period of inactivity imposed upon the bank, when it cannot take steps aimed at recovering its receivables under the granted loan, in order to enable the borrower to sell the property, is also an ambiguous requirement (art. 35.1 of the Act). The term “steps aimed at recovering the receivables” which appears in the Act is very broad and imprecise. It may raise doubts about unclear scope of actions allowed to the bank during the 6-month period.

It seems obvious that the bank should not initiate enforcement proceedings and that commented provision should only refer to this kind of bank’s activity. However, it is much more difficult to assess, if other actions taken by the bank can be treated as “aimed at recovering the receivables”, e.g. contacting potential buyers and ordering property valuations, which may affect efficiency of subsequent satisfaction from the property after the lapse of the 6-month period.

Moreover, such a long time for conducting a sale, during which the bank must remain passive, does not serve the interests of the consumer, as it may lead to both an increase of the mortgage loan costs by the accrual of default interest and a worsening of the borrower’s credibility at the Credit Information Bureau (BIK).

Tricky deletion of mortgage

Further doubts arise with regard to the bank’s obligation to give its consent to deleting the mortgage over financed property from the land and mortgage register, if the amount obtained from the sale of the property does not satisfy all of its claims towards the consumer (art. 35.2 of the Act). There is a risk of selling the property well below its market value, while the bank still will be obliged to release mortgage. It seems, that the bank should be obliged to consent to release the mortgage only after the establishment of a new security. Consent to the deletion of the mortgage, which is only later followed by a demand to provide substitute security by the consumer, may leave the bank with a completely unsecured loan.

What’s next?

The discrepancies in the interpretation of the law, as described above, affect the interests of banks and consumers, and these are just some of the unclear aspects of the Act. Many ambiguities can be avoided by way of proper wording of the mortgage documentation. However, the question remains as the time will pass by, whether the further intervention of the legislator would be needed…

If you would like to learn more about Mortgage Act and how it may impact your business, please feel free to contact Robert Makowski, Senior Associate, Banking practice.