The Central Bank warned about the risks of mortgages with letters of credit and the assignment of equity agreements

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AK&M 01 March 2024 13:14

The Bank of Russia has recorded the emergence of new schemes for the purchase of housing under construction, which carry risks for buyers and warned about the risks of mortgages with letters of credit and the assignment of equity agreements. This is stated in the press service of the Central Bank.

Some banks, together with developers, offer, when issuing mortgages to borrowers, agreements for participation in shared construction (DDA), under which part of the funds for the apartment is placed not on the escrow account, but on a letter of credit.

The bank receives additional profitability from the use of these funds, part of which can be given to the borrower in the form of a discount on the mortgage rate at the construction stage. The developer can agree to this scheme so that the bank ensures the issuance of mortgages and sales growth.

The regulator emphasizes that the risks for individuals in this scheme are related to the fact that, unlike escrow accounts, which are insured by the state in the amount of up to 10 million rubles, the funds on such a letter of credit are not insured at all.

If the license is revoked from the bank in which the funds are on the letter of credit, the person may lose them, while still remaining due to the bank for a mortgage loan and lose the apartment, since the DDU was not actually fully paid.

In addition, the Central Bank has identified cases when developers sell housing at the construction stage to affiliated persons, concluding a contract with them at a price several times lower than the market, and these funds are placed on an escrow account. When assigning (assignment), a person already pays the real market price, but along with the rights of claim under the DDA, he receives an escrow account, on which only the initial (understated) price of the apartment, and the difference immediately goes to the seller affiliated with the developer, and is not credited to the escrow account at all.

In this case, a person bears risks already in case of default of the developer: in case of non-fulfillment by the developer of his obligations, this will lead to the loss of most of the funds actually paid for the apartment (the difference between the real price paid at the time of purchase and the amount of funds in the escrow account).

"Banks and developers who practice such schemes, in fact, take advantage of people's ignorance. In particular, the law does not clearly specify the time when exactly the money should be transferred to the escrow account, but states that this should happen in accordance with the contract, but no later than the moment the house is put into operation. In practice, this means that formally it is possible to draw up a contract in such a way that the funds will remain without insurance protection for several years while the house is being built, or part of the funds will not be sent to the escrow account. At the same time, people may not understand the risks that they take on themselves in this regard," the regulator emphasizes.


The XXII All-Russian Conference "Mortgage Lending in Russia" will be held in Moscow on March 29, 2024. The conference was organized by the AK&M news agency with the participation of relevant ministries, departments, as well as leaders of the affordable housing and mortgage lending market.

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