Decision details
| Date | August 23, 2016 |
|---|---|
| Court | Tel Aviv-Jaffa District Court |
| Case | Civil Claim 2311-06 (Yigal Yeshinovsky et al. v. Mizrahi Tefahot Bank) |
| Type of decision | Judgment |
| Amount | Not set / not published |
| Topic | Mortgage enforcement: scope of a lien, duty of disclosure |
| Source | Full text |
Background and facts in Civil Claim 2311-06 Yeshinovsky v. Mizrahi Tefahot Bank
The judgment was given on August 23, 2016 in the Tel Aviv-Jaffa District Court, by Judge Anat Baron. The plaintiffs are members of the Yeshinovsky family, an unregistered partnership engaged in development and construction, and a company that bought a property from one of the partners. The defendant is Mizrahi Tefahot Bank.
According to the facts found by the court, in 1990 the partnership bought a plot in Ra'anana for a construction project, and the bank extended credit to it. To secure the credit, the cottage in which Yigal Yeshinovsky and his wife lived was mortgaged to the bank, as were apartments of his brothers in Holon. In 1995 a construction financing agreement of USD 4.8 million was signed. The partnership did not meet its sales targets: by June 1997 only one cottage had been sold instead of five.
In 1999 the partnership pledged two plots in Afula to the bank as additional security for the project. At the same time, debts accumulated in the joint private account of Yigal and his wife. In 2000 Yigal alone signed a request to renew credit in the private account, and offered the cottage as security. His wife did not sign the request.
In March 2004 the bank began to enforce the securities. Its position was that every lien secures the debts in all of the family's accounts, business and private. In 2008 one of the plots in Afula was realized through the Execution Office, and the bank credited the proceeds, about NIS 450,000, to the couple's private account.
The parties' arguments
The plaintiffs argued that the properties were pledged to secure only the partnership's debts, and that the family's accounts should not be mixed. Alternatively they argued that only Yigal's share of the cottage could be enforced against the private debt, because the bank did not ask for and did not obtain his wife's consent to the extension of the lien. They also asked to cancel section 19 of the mortgage deed, in which they had apparently waived the protection of alternative housing and the protection of a protected tenant.
The plaintiffs further argued that the bank's representative put improper pressure on them to sell properties at a loss, that the bank thwarted a deal in Afula, and that their accounts were unlawfully charged interest and fees. They also claimed damages.
The bank argued that the liens secure all the debts, according to the broad definition of the credit in the mortgage and pledge documents. According to the bank, the couple signed the mortgage deed before a lawyer and so understood the waiver. The bank further argued that the partnership breached the construction financing agreement, and that most of the monetary claims were time-barred.
What the court held: the scope of the lien and Mizrahi Tefahot's duty of disclosure
The court began with the heightened duty of disclosure a bank owes to a person who pledges a property. According to the judgment, the duty includes an explanation of the nature of the transaction and of its legal aspects, and not only the provision of data. The court added that it is preferable for the bank's own representatives to have the mortgagors sign.
The cottage in Ra'anana: only half of the rights
The court held that from July 2000 at the latest the lien on the cottage also secured the debts in the private account. However, it held that the wife's consent to the lien was given in 1990 only for the purpose of buying the plot. The bank's representatives testified that she was not called to the bank regarding the extension of the lien. Therefore it was held that the lien does not apply to her rights, and the bank may recover only from half of the rights in the cottage, Yigal's share.
Waiver of alternative housing void, waiver of protected tenancy valid
The court held that section 19 of the deed is a standard and terse clause. The bank did not prove that it explained to the couple the right to alternative housing under section 38 of the Execution Law and the meaning of the waiver. The signing was done before a lawyer and not before a bank representative. Therefore the waiver of alternative housing is void. On the other hand, the waiver of protected tenant protection under section 33 of the Tenant Protection Law was found valid, according to the case law that interprets it broadly.
The apartment in Holon and the plots in Afula
The court declared that one of the apartments in Holon secures only the partnership's debts, as the bank itself confirmed in a letter from February 2002. As to plot 5 in Afula, it was held that the lien secures only the partnership's debt, because it was not proven that it was explained to the partners that it also secures private debts. The bank was entitled to realize the plot, but it should have credited the proceeds to the partnership's account and not to the private account. As to plot 10, an order was given to delete the pledge, and the bank did not object.
The claims that were rejected
The claims of coercion and improper pressure were rejected. The court held that the bank is not a business partner of its customers and is not obliged to finance a deal that is not worthwhile for it. Claims on interest calculations and software from the 1980s and 1990s were rejected as time-barred. Also rejected were the claim against the default interest, the demand to credit an early repayment fee and the claim for compensation for distress. No costs were awarded.
Quotes from the decision
Therefore, in the absence of sufficient disclosure on the part of the bank, in breach of duties of trust, no real weight should be attributed to what is stated in the mortgage deed in this context.
The judgment, chapter "The lien on the cottage in Ra'anana" (translated from Hebrew).
Section 19 of the mortgage deed is a terse clause, worded in a standard form in the bank's mortgage deeds.
The judgment, chapter "Waiver of protections, section 19 of the mortgage deed" (translated from Hebrew).
The bank is not a "business partner" of the plaintiffs, and as a rule it is under no duty to provide bank financing for a transaction that, in its discretion, is not worthwhile for it from a business and economic standpoint.
The judgment, chapter "The claim of improper pressure and coercion" (translated from Hebrew).
What it means for Mizrahi Tefahot customers
The judgment shows that broad wording in a mortgage deed is not decisive on its own. The court examined what was actually explained to each mortgagor, and especially to a spouse who was not a party to the credit. Where no explanation was proven, the lien was narrowed to the debts for which it was given.
A customer whose property is pledged can check which debts were presented to him at the time of signing, who had him sign, and whether the right to alternative housing was explained to him. More information on enforcement and collection proceedings appears on the page Mizrahi Tefahot collection proceedings, and on the bank's fiduciary duty in the section The bank's fiduciary duty.
Sources
More court rulings against Mizrahi Tefahot on mortgages and housing loans
- Early repayment fee on a multi-track mortgage: Mizrahi Tefahot will pay NIS 5.5 million in a settlement
- Civil Claim 50131-09-22 Zaghroun: Mizrahi Tefahot was negligent with a mortgage, and the customer lost an Israel Land Authority tender
- Class Action 41639-12-17 Shif: Mizrahi Tefahot will refund interest differences to variable-rate mortgage borrowers and grant a future discount
- Conflicting transactions in an apartment: Mizrahi Tefahot was negligent, and the mother's right prevailed over the pledge
- Early repayment fee on a "supplementary loan": Mizrahi Tefahot will refund overcharged fees
All 39 decisions in the database ›
Questions and answers
May Mizrahi Tefahot enforce against the whole cottage in the Yeshinovsky case?
No. The court held that the bank may recover the private account debt only from half of the rights in the cottage, the husband's share, because the wife's consent to the extension of the lien was not obtained.
What was held about the waiver of alternative housing in the mortgage deed?
The waiver of the right to alternative housing under section 38 of the Execution Law was cancelled, because the bank did not prove that it explained it. The waiver of protected tenant protection remained in force.
What happened to the proceeds from realizing the plot in Afula?
The court held that the lien on the plot secures only the partnership's debt, and ordered that the realization proceeds be credited to the partnership's account instead of the private account.
Was compensation awarded for pressure by the bank?
No. The claims of coercion, improper pressure and thwarting the deal were rejected, as were most of the monetary claims, some of them as time-barred.
Where can I read the full text?
The full text is available through the "Full text" link on this page.