Home sweet home
"Jointly held real property may only be encumbered by a mortgage if specifically provided for by law."
- Art. 65, Act on Land & Mortgage Registers
Remember the wife who threatened to divorce her husband because he couldn't remember to pay their electric bill on time, resulting in the power company disconnecting their electricity pursuant to the new provisions of the Energy Law ("Let there be light...," March 3)? I am happy to report that our young couple have weathered that storm (she now controls the household finances), and have decided to purchase their first home.
For most of us buying a home represents the largest single cash outlay of our lives. In order to encourage home ownership, most governments throughout Europe permit homeowners to deduct certain ownership costs to one degree or another from their tax obligations, including interest paid on a mortgage. On January 1, 2003, Poland took a step in the wrong direction, when amendments to the Act on Land and Mortgage Registers took effect. The offending amendment, Art. 65(2a), literally makes it illegal for a married couple to obtain a mortgage in order to finance the purchase of a home.
How did this happen? Innocently enough. The tax authorities wanted to ensure that they would have the power to place a tax lien (mortgage) on real property jointly held by a husband and wife for the past due tax obligation of just one of the spouses. In other words, they wanted to make sure that our forgetful husband could not escape enforcement proceedings against his assets for not paying his taxes by hiding his money in real property jointly held with his wife.
If parliament had stopped with only making changes to the tax code, our couple would be able to borrow the money from a bank to purchase their dream home, using the house itself as collateral for securing the repayment of the loan. Unfortunately, the lawmakers decided to take a further step and introduced Art. 65(2a) to the Act on Land and Mortgage Registers to ensure that a mortgage placed against jointly held real property by the tax authorities would continue to have priority over any other mortgages placed against the property, as has been the custom.
Thanks to poor legal drafting, Art. 65(2a) has made it impossible for our husband and wife to obtain a mortgage to purchase their dream home, while permitting the tax authorities to place a tax lien against their jointly held real property for the past due taxes owed by our forgetful husband. At the same time, however, the law prohibits the tax authorities from placing tax liens against real property jointly held by a civil partnership, having the exact opposite effect of what they wanted to achieve. The tax authorities now find themselves in the absurd position of having drafted a law that discourages home ownership and inhibits their ability to collect past due taxes from members of a civil partnership.
Is there any hope for our unlucky couple? Yes, they could probably still get a loan from a bank, assuming that the husband's credit history isn't a disaster, but the bank will most likely charge a higher rate of interest or charge an additional up-front fee to cover the added risk of granting a loan that cannot be secured by the underlying real property. In practical terms, the additional up-front fee may add another zł. 5,000 to the cost of obtaining the loan.
Any other way around this law? Yes, help has arrived. On March 11, 2003, just 71 days after the law first took effect, Art. 65(2a) was repealed. As far as I am aware, this law has had the shortest life span in recent history. In this case, parliament reacted quickly to repeal this bad law in response to complaints raised by the business community, would-be homeowners and the tax authorities themselves.
Great! Now our couple can apply for a mortgage to buy their dream home.
Loan Officer: Mr. and Mrs. Applicant, before we can give you a mortgage to purchase your new home, we will first need to check your credit history.
Wife: No problem, I always pay my bills on time.
Husband: Uh oh...
Paul Fogo, a senior attorney at Miller, Canfield, Paddock & Stone, prepared this article with the assistance of Wojciech Jacyno, an associate attorney.
