In four rulings handed down on 11 February 2016, the Court of Cassation reversed the case law, putting an end to a practice that benefited borrowers, who were able to repay nothing thanks to a two-year statute of limitations coupled with the slowness of banks in asserting their rights.
Prior to this ruling by the Cour de cassation, the banking institution had two years from the date of default on a mortgage to take legal action to demand repayment of the entire loan. It was not uncommon for the two-year period to be exceeded by the time an amicable solution could be found, without the bank taking legal action against the borrower. The borrower could then benefit from a nice 'bonus' by being able to stop repaying the capital, interest and various indemnities.
Since 2012, the Court of Cassation had based itself on article L137-2 of the French Consumer Code to hold that the starting point for the two-year limitation period was the date of the first non-honoured payment incident. Although this is a recent development, the judges have now revisited this case law and made two clarifications.
On the one hand, an action for payment of the outstanding capital is time-barred from the date on which the term expires, which means that it is due and payable. The starting point is therefore no longer the date of the payment incident, but the moment when the banking institution declares the acceleration of the term in order to take action against the customer, i.e. when it demands immediate payment of the outstanding sums.
On the other hand, the two-year limitation period applies individually to each instalment. This means that the statute of limitations cannot prevent payment of outstanding instalments and those not yet time-barred. The two-year period is divided in the same way as the debt. A distinction must now be made between consumer credit and property credit. In the case of the latter, it is no longer the action as a whole that is time-barred, but only the action relating to instalments outstanding for more than two years.
