Practical guide: How to deal with buyer financing (Article 621-49 CCCat)
Article 621-49 of the Civil Code of Catalonia grants the buyer the possibility of withdrawing from the purchase contract if the agreed financing is not obtained. In this article, we explain how real estate agencies can prevent legal problems and ensure legal certainty in transactions.
What does Article 621-49 of the CCCat establish?
Article 621-49 of the Civil Code of Catalonia establishes a legal faculty of the buyer to withdraw from the purchase contract if the contract provides for the financing of the purchase price by a credit institution, in the event that he justifies the refusal of the financing within the agreed period. In this case, the buyer may withdraw from the contract and recover the deposit paid.
The literal wording of the aforementioned article is as follows:
Article 621-49. Provision for financing by third parties.
If the contract of sale provides for the financing of all or part of the price by a credit institution, the buyer, unless otherwise agreed, may withdraw from the contract if he provides documentary evidence, within the agreed period, of the refusal of the designated institution to grant the financing or to accept the subrogation of the buyer in the mortgage encumbering the property, unless the refusal is due to the negligence of the buyer.
2. The withdrawal of the buyer obliges the seller to return the price paid and, if applicable, the deposit, and obliges the buyer to leave the seller in the same situation in which he would have been if the contract had not been concluded, without prejudice to the provisions of mortgage law.
The interpretation of the first requirement (the provision of financing in the contract) is not peaceful and in the coming months a ruling will be issued by the Superior Court of Justice of Catalonia – at least there is a proceeding that I have had the opportunity to participate in that will address this issue – which will set the rules of interpretation as to whether or not it is a requirement that the provision of financing be expressly stated in the purchase contract, or whether a statement during the negotiations may be sufficient without the need for subsequent express reflection in the purchase contract.
Implications of Section 621-49 and recommendations for Real Estate Agencies
From the point of view of real estate agencies, until such time as a criterion is established by the Court, I consider it advisable to follow the following guidelines:
1. The Agencies must be attentive to the communications of the possible buyers that they intend to finance the price of the purchase with a credit institution. All the communications, and especially those that are in writing where this intention is manifested on the part of the buyer can involve a future attempt of application of article 621-49 CCCat to desist from the sale and to recover the deposit delivered.
2. Before any communication from the buyer about his willingness to finance and, above all, to include the financing forecast, the seller must be informed so that he can decide whether or not he agrees to its inclusion in the contract, and he must opt for one of the options that I indicate below, which must be reflected in the contract for greater legal certainty.
If the seller is a natural person, he is free to reject this inclusion of the buyer’s right to withdraw, but in that case, my advice is that the contract expressly reflects the agreement to exclude the application of article 621-49 CCCat.
4. If the seller is a company and the buyer is a natural person who has requested the inclusion of this provision (or has simply communicated his intention to finance the purchase to the agent), my advice is that the selling company in no case opt for a clause in the contract that imposes the waiver or exclusion of the application of article 621-49 CCCat, because it is very likely that in a legal proceeding it will end up being a null clause. For these cases, the selling company has three options; 1) to discard this buyer because he does not comply with its conditions, 2) to give the buyer a term to manage his financing before signing the purchase contract once he has obtained the financing, reflecting it expressly in the contract, or 3) to include a clause that includes the financing forecast regulating the terms and conditions of application to the concrete case, but without there being a waiver of the rights granted by the article.
The casuistry is too wide to reflect in this publication, but it must be taken into account that the agencies must know the origin of the buyer’s funds prior to the subscription of the private purchase contract, so it is advisable to identify when there is risk and adopt diligence measures that can avoid future judicial conflicts between the seller and buyer, in which the agency can be equally affected.