Formation of a mortgage contract

Buying a property usually involves taking out a loan. This may seem like a straightforward operation, but in reality it is governed by strict rules designed to protect the borrower. The mortgage contract is not formed instantly, but follows a precise, sequenced process. Understanding these stages is essential if you are to avoid the pitfalls and make a fully informed commitment. From mortgage reform and your rightsprotection for borrowers has been strengthened.

Preparing the credit offer: an essential preliminary stage

Even before making a formal loan offer, the lending institution is legally obliged to assess your financial situation. This preliminary phase, governed by articles L. 313-16 et seq. of the French Consumer Code, requires the banker to check that you are "likely" to be able to meet your repayment obligations.

To do this, you will need to provide detailed and accurate information about :

• Your income (salary, property income, etc.) and available savings.
• Your recurring expenses (rent, other outstanding loans, maintenance payments, etc.).
• Your existing debts and other financial commitments.

The bank then carries out a rigorous assessment of your creditworthiness. It is important to stress that a lender who grants credit without carrying out this serious analysis of your ability to repay could be held liable in the event of subsequent difficulties (as illustrated by established case law, e.g. Cass. 1re civ., 12 Sept. 2007, no. 06-15.640).

Order no. 2016-351 of 25 March 2016 introduced a new feature: the value of the property being financed can now be assessed by an independent expert. Although not systematic, this appraisal can influence the bank's decision and the terms and conditions of the loan.

Mandatory content of the credit offer: transparency first and foremost

The mortgage offer is not a trivial document. Its content is strictly regulated by article L. 313-25 of the French Consumer Code to ensure that borrowers are fully and clearly informed. It must contain the following information

• The precise identity of the parties (lender, borrower(s) and, where applicable, guarantors).
• The type of loan (amortising loan, bridging loan, etc.), the purpose (purchase of main residence, works, etc.) and the terms of the loan (conditions for making funds available, etc.).
• For fixed-rate loans: a detailed schedule of repayments, specifying for each instalment the breakdown between capital repaid and interest.
• For variable-rate loans: a notice explaining the conditions and procedures for varying the rate, as well as a simulation showing the figures for the impact of a variation on the monthly repayments, the term and the total cost (this simulation is for guidance only).
• The exact amount of credit granted and its total cost.
• The Annual Percentage Rate (APR), which includes all the costs associated with the loan (interest, administration fees, compulsory insurance, etc.).
• Insurance and guarantees (mortgages, sureties, etc.) required by the lender, with an estimate of their cost.
• Mention of the borrower's right to choose their insurance (cf. art. L. 313-30).
• Any conditions for transferring the loan to a third party.

The Court of Cassation is scrupulous in ensuring that these formalities are complied with. An erroneous APR or the omission of a mandatory statement may result in the lender forfeiting the right to interest, a sanction confirmed, for example, in a ruling dated 25 February 2016 (no. 14-29.838). You can find out more about pre-contractual information for mortgages to better understand your rights.

The mandatory cooling-off period: protection against hasty commitments

To avoid decisions being taken under pressure, the legislator has introduced an incompressible cooling-off period. Article L. 313-34 of the Consumer Code is very clear: the borrower (and guarantors who are natural persons) may only accept the offer of credit ifafter a period of ten clear days following receipt.

During this minimum 10-day period :

• The offer issued by the bank cannot be modified.
• The lender is bound by the conditions proposed in the offer (which must itself be maintained for at least 30 days).
• No payment of money, in any form whatsoever, may be required of the borrower or made by the lender in respect of the transaction.

This rule is a matter of public policy, which means that it cannot be waived, even by mutual agreement. The Court of Cassation has firmly reiterated this (Civ. 1re, 9 Dec. 1997, no. 95-15.494). Acceptance given before the expiry of this period would render the loan contract null and void or expose the lender to forfeiture of its right to interest. This period applies to everyone, including borrowers considered to be "informed".

Acceptance of the offer: a formal act

Acceptance of a loan offer must comply with specific formalities in order to be valid. Article L. 313-34 of the French Consumer Code requires a acceptance given in writing. It must be returned to the lender by post, with the postmark serving as proof of the date of acceptance. The parties may agree to use another means (e.g. secure electronic), provided that it enables the date of acceptance to be established with certainty.

Verbal acceptance has no legal value. Similarly, the question of acceptance by a proxy is a delicate one, as it seems difficult to reconcile with the personal nature of the cooling-off period.

It is essential to note that an acceptance given prematurely (before the end of the 10-day period) is null and void and cannot be "ratified" or "confirmed" by a simple reiteration after the period. For the contract to be validly formed, the process would have to be repeated and a new acceptance issued within the time limit (Cass. Civ. 1re, 30 March 1994, no. 92-13.653).

Coordination with ancillary operations

Credit agreements are often linked to other transactions that are essential to their completion:

• Loan insurance : Although the choice of insurer is free (Lemoine 2022 law), banks almost always require you to take out insurance to cover the risks of death and disability. Article L. 313-29 of the French Consumer Code requires a detailed information leaflet to be provided. The banker has a greater duty to advise you on the suitability of the cover for your personal situation (Cass. Ass. Plén., 2 March 2007, no. 06-15.267).
• Guarantees : Conventional mortgage, lender's lien (PPD), bank guarantee, etc. The offer must specify the guarantees required and their estimated cost.
• Multiple loans : If your project is financed by several loans (main loan, zero-rate loan, additional loan, etc.), article L. 313-37 provides for interdependence: each loan is concluded subject to the condition precedent that the other significant loans (representing more than 10% of the total loan) are actually granted.

The precise moment of formation of the credit agreement

A key question is when exactly the credit agreement is legally formed. Contrary to a long-held belief, a loan of money granted by a professional is no longer considered to be a "real" contract that requires the actual delivery of funds in order to exist.

The Cour de cassation has clearly established that a home loan contract is a consensual contract, formed by once the borrower has duly accepted the offer (Cass. 1re civ., 27 May 1998, no. 96-17.312).

This qualification has important practical consequences:

1. Upon valid acceptance, the borrower acquires the right to demand payment of the funds promised by the lender.
2. The guarantees associated with the loan (such as insurance) take effect from this acceptance, without waiting for the funds to be released.

This principle also has an impact on the famous loan condition precedent stipulated in most preliminary contracts for the sale of property (promesse or compromis). Case law considers that this condition is deemed to have been fulfilled not on acceptance, but upon presentation to the purchaser of a firm and compliant loan offer the characteristics defined in the preliminary contract (Cass. 1re civ., 9 Dec. 1992, no. 91-12.498).

The property loan contract formation process is therefore punctuated by key stages and imperative deadlines designed to protect the borrower. The complexity of these rules and the considerable financial stakes involved often make in-depth legal analysis essential.

If you are planning to buy a home or have questions about a loan offer, our lawyers advise you on mortgages. Do not hesitate to contact our firm to secure your commitment.

Sources

• Consumer Code, articles L. 313-16 to L. 313-37 (formation of contract, offer, acceptance)
• Consumer Code, articles L. 313-25 (content of the offer), L. 313-34 (cooling-off period and acceptance)
• Order no. 2016-351 of 25 March 2016 on consumer credit agreements relating to immovable property for residential use
• Court of Cassation, 1st Civil Chamber, 27 May 1998, no. 96-17.312 (consensual nature of the contract)
• Court of Cassation, 1st Civil Chamber, 9 December 1997, no. 95-15.494 (public order of the cooling-off period)
• Cour de cassation, Assemblée plénière, 2 March 2007, no. 06-15.267 (duty to provide insurance advice)
• Court of Cassation, 1st Civil Chamber, 25 February 2016, no. 14-29.838 (penalty for incorrect TEG)
• Law no. 2022-270 of 28 February 2022 (right to cancel loan insurance)