Judgment

Mother signed as a borrower on her daughter's mortgage: Bank Tefahot's claim to evict her from her apartment rejected

The court rejected Bank Tefahot's claim to evict a mother from her apartment, and held that having her sign as an "additional borrower" on her daughter's mortgage was a fiction intended to circumvent the protections of the Guarantee Law.

Background and facts: a mother added as an "additional borrower" to her daughter's mortgage

The details here are based on a report on Walla Finance. The full text of the judgment was not found openly online. According to the report, Judge Eitan Orenstein of the Tel Aviv District Court rejected Bank Tefahot's claim to evict a mother from her apartment.

According to the report, in 1999 the daughter and her husband bought an apartment in Bat Yam for NIS 615,000, without equity. The Tefahot branch in Bat Yam agreed to finance the full amount, on condition that they pledge the apartment, that the mother be added as an additional borrower and that the mother pledge her apartment. A few days later an additional loan agreement was signed, and in total the loans stood at NIS 632,000.

The couple did not keep up with the repayments, and the bank enforced against their apartment. It was sold in 2004 for NIS 726,000. The mother was not joined to the execution file, and the bank did not send her reports on the arrears and on the sale. Only in October 2007 did the bank demand about NIS 280,000 from her, and a week later it opened execution proceedings against her apartment.

The parties' arguments

The mother argued that she was surprised by the demand, because she believed the loan had been repaid with the sale of the couple's apartment. According to her, the bank created a fiction when it added her as a borrower, although in practice she was a guarantor. She further argued that a bank clerk told her the sale proceeds would be enough for repayment.

The bank argued that the notices were not sent because of technical computer failures. In its view, the mother should have known about the arrears, and she did not prove damage from the notices not being sent.

What the court held: a guarantor, not a borrower

According to the report, the judge held that the mother should be regarded as a guarantor and not as an additional borrower. He wrote that having her sign was "an improper fiction intended to circumvent a phenomenon that the legislature believed should be uprooted". He also noted that a bank specializing in mortgages is aware that it may contract with an additional borrower only within the framework of the Guarantee Law.

It was held that the bank breached provisions of the Guarantee Law that apply to it and the duty of good faith in performing a contract. The mother was released from her obligations to the bank. The judge ordered the Land Registrar to delete the mortgage registered in favor of the bank on her rights in her apartment. The bank was ordered to pay legal costs of NIS 35,000.

What it means for Mizrahi Tefahot customers

According to the judgment as reported, the court examines the substance of the arrangement and not only the title on the document. A person who was made to sign as an additional borrower but did not receive the loan funds and did not benefit from them can check whether his actual status is that of a guarantor. More cases of guarantors appear on the page Civil Appeal 4651-02-17: mortgage guarantor v. Mizrahi Tefahot.

Sources

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

Can a bank have a parent sign as an additional borrower on a child's mortgage?

In the judgment reported on Walla it was held that having the mother sign as an additional borrower was a fiction, and that her real status was that of a guarantor, and so the protections of the Guarantee Law apply to her.

What happened to the mortgage on the mother's apartment?

The judge ordered the Land Registrar to delete the mortgage registered in favor of the bank on the mother's rights in her apartment.

Was the bank required to update the mother on the arrears?

The bank argued that the notices were not sent because of a technical failure. The court held that the bank breached the provisions of the Guarantee Law and the duty of good faith.

How much in costs did the bank pay?

NIS 35,000, according to the report.

The full text was not found openly online; details according to a report, not yet verified against the text of the decision

How to cite

Case number not stated in the source, Tel Aviv District Court, 11.10.2010. Source: Net HaMishpat (Israeli courts database), case Case number not stated in the source.

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