Spanish mortgages – Latest news.

 

Following our previous article about mortgages in Spain.

The CJEU resolution (21th of December 2016) allows consumers to claim their money back retrospectively from Spanish Banks

 

As we explained in our previous article, The Court of Justice of the European Union (CJEU) was recently asked to decide about an important case for Spanish consumers as well as for Spanish Banks. The final decision has now been issued and this is good news for those individuals who got a Spanish mortgage but not for the banks.

Some of you will recall that some Spanish mortgages signed in the last 15 years contained a clause that Spanish Courts recently declared null and void because of the “lack of transparency” and “the failure to inform customers adequately” when they signed the mortgage deed. These clauses are known as a “cláusula suelo” which means that they are subject to a minimum monthly payment even if the interest rate, which usually has a variable rate linked to the Euribor, is negative.

If you bought a Property in Spain during the property bubble (2000 to 2008) you were probably paying the appropriate interest. However, the interest rates were quite low after the recession and those who had a “clausula suelo” on their mortgages have been paying an unfair and excessive interest on their mortgages which they can probably claim back.

The consumer’s action group (Adicae) started in 2013, on behalf of 15.000 mortgage holders, a claim against banks claiming for the nullity of the “cláusulas suelo”, after these had been declared “abusives” by the Spanish Supreme Court but with a retrospectivity to May 2013. This was clearly unfair. If a clause in a mortgage was considered abusive then the consumer’s right to claim should not be capped to May 2013. It should be retrospective to the date in which the mortgage deed was signed.

The said action group went to Luxembourg asking for the backdating to the date that the mortgage was signed and the CJEU has today decided that Spanish Banks have the obligation to refund unlawful interest from the very beginning: backdated to the date the mortgage was signed (instead of May 2013).

This means that Spanish banks have to pay consumers around €4.000.000. Goldman Sachs says that BBVA will be the Spanish Bank with a higher debt in front of consumers with €1.815.000.000; CaixaBank (La Caixa) with €750.000.000; following them: Banco Popular and Bankia with €160.000.000. These are the main banks but there are around 40 more banks involved.

Obviously, there are some exceptions depending on the mortgage holder’s profiles or depending on the specific circumstances of each case, but what is clear is that if you or your clients signed a mortgage in Spain during the property bubble years you or them could have the right to claim some money back.

In the following months Spanish Banks will probably try to sign transactional agreements with consumers. We strongly recommend to contact a Spanish Lawyer for advice to 1) analyse your mortgage in detail and inform you if contains a “cláusula suelo” and 2) see if you have the right to ask for a refund when that Decision takes place and last but not least 3) to deal with your Bank to ask for the refund or to negotiate with it.

 

 

Claudia Font & Antonio Guillen

Spanish lawyers at gunnercookellp

1 Cornhill London EC3V 3ND 53 King Street Manchester M2 4LQ

 

Do´s and don´t when buying property in Spain

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Do’s & don’ts when buying in Spain.

DO’S.

  • Make your budget.

Apart from the price of the property you should consider other costs related to the transaction such as follows:

  • Taxes, Notary and Land Registry: You should consider 10%-12%.
  • Spanish Lawyer fees*
  • Surveyor** although it is not mandatory to ask for a survey, we would recommend to have one in order to be 100% sure about what you are buying.
  • Real Estate Agency fees: if you are using a real estate agency for the search they will charge a percentage of the price, depending on the region although the norm is that this is paid by the seller.
  • * although it is not mandatory to instruct a lawyer when buying in Spain, because the Notary carry out the main checks (charges etc) we strongly recommend you to instruct one to ensure that your interests and investment are properly protected.
  • Ensure you have 30% for the mortgage deposit plus 10% for the Notary, taxes and Land Registry fees.

Nowadays, most of the banks are not offering mortgages which exceed 70% of the price, so you will need to ensure you are able to pay a deposit of 30%, as well as paying the costs.

  • Decide what and where you want to buy.

Spain has different regions with big differences between them in terms of weather, lifestyle, tourism, etc and most importantly, in terms of price. We would recommend that you visit in winter so that you can get an idea of the way of life outside tourist season.

Once you decide where you are going to buy, you should consider the different types of properties you can buy, i.e. brand new, old property, off-plan property, urban or rustic land, and obtain legal advice to ensure you are fully advised on all aspects of being a new owner.

  • Check different options of mortgages.

Make sure you fully understand the mortgage agreement you are going to sign. We would recommend to ask for the mortgage deed to be reviewed by a lawyer in order to ensure it does not contains abusive clauses.

Look for the mortgage which is most appropriate for your capabilities and needs. There are a range of mortgages on offer and you should pay special attention to the interest rate and repayment period, fees for setting up the mortgage as well as early repayment and cancellation fees.

  • Reserve the property and sign a “contrato de arras”.

If you find “the” property, you will have to reserve it while your lawyers are dealing with all the checks that the transaction needs to ensure that you are buying safely. You will need to pay a reservation fee of around 3000 Euro which will take the property out of the market. Then, once your lawyer is happy with the legal documentation, you will be asked to pay a deposit of around 10% with the signing of the purchase agreement (contrato de arras) and the rest will be due on completion.

Signing an “arras” contract means that both parties have the right to withdraw:

If you decide not to proceed with the transaction you will lose the deposit, but if it is the seller who withdraws, or if the property has been misrepresented, you will be entitled to claim for double of the deposit.

  • Consider engaging a surveyor.

You may consider that the property needs to be surveyed by a professional with appropriate experience and qualifications. That is very sensible, but you will find that some Spanish estate agents will discourage this.

  • Find out about the annual expenses of owning a property in Spain.

Be certain of the likely annual expenses you will incur, including service charges, property tax (IBI), non-residents income tax, wealth tax if applicable, electricity, water, gas, etc.

  • Hire a Spanish lawyer.

All of the above-mentioned advice can became a terrible bureaucratic fight if you do not engage the expertise and help of an independent Spanish lawyer.

A Spanish lawyer will guide you through the entire process, avoiding extra costs and which is more important, ensuring that the property you are going to buy, has all it needs to be transferred (no charges), no development plans affecting it, etc.

You can use a Spanish Lawyer based in Spain or in the UK. Please note that there are several UK law firms with an in house Spanish lawyer able to provide legal advice without you having to go to Spain.

  • Make a Spanish Will.

We would recommend to sign a Spanish Will when acquiring a property in Spain.

DON’TS.

  • Do not be forced by the bank to get their insurance or other bank products.
  • Do not sign any document if you do not understand them.
  • Do not pay more than what was agreed.
  • Do not sign any document without a Spanish lawyer.
  • Do not buy a property without taking legal advice.
  • Do not pay large amounts of money to developers who do not offer you the security of a Bank Guarantee for these payments.
  • Do not be tempted to declare a lower property value than the actual purchase price.

In the past it was quite common to declare a low value for the property in order to minimize the transfer tax. Nowadays, the Spanish treasury will prosecute anyone who declares a lower price. The wrongdoer will be punished and additional interest will be applied. On the other hand, when you decide to sell this property, you will be liable for Spanish capital gains tax on any profit made and, you will be liable for tax on a much larger profit when you sell later. The safest way is to ask at the payment office of the nearest tax agency and they will give you the exact value of a particular property.

By Claudia Font & Antonio Guillen

CHANGES TO THE SPANISH LEGISLATION REGARDING FORECLOSURE

 

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Given the increase of evictions and the drama that this carries to the Spanish society, a new Law (1-2013 14th May) has been launched in order to protect those who cannot pay the mortgage. The new law aims at helping those who, if provided with a longer time to improve their economic situation, will be able to recover financially and take control of their momentary financial distress.

The main novelty is the possibility to suspend the eviction procedure for a period of two years to give a breath of fresh air to these families.

Those who qualify for this specific measure are the vulnerable people who are in the parameters of special risk. These parameters are the following:

–          To be a family of three or more children.

–          To be a single parent family with two or more children

–          To have a family member that is less than 3 years old

–          To have a member of the family who is disabled

–          The mortgagor is unemployed and has no more estate benefits

–          The mortgagor is a victim of gender domestic violence

At the same time, the combined family income cannot be higher than 1,597.53 euro per month (which corresponds to three times the ´IPREM´, an economic indicator that is used in Spain as a guidance figure to grant benefits and aids).

Finally, the mortgagor needs to prove that the financial capability of the family has changed in the last 4 years and differs from the previous circumstances when the mortgage was signed. For instance, if the mortgage was signed when two members of the family were fully employed, an example of the qualifying criteria would be that one of them is jobless and that this situation has arisen in the last 4 years.

The above is the special measure to suspend evictions for a period of 2 years but there are other measures that are worth noting and that apply to all types of mortgagors. For instance, the lender, generally a bank, will not be able to foreclose the mortgage unless the debtor or mortgagor is 3 or more months in mortgage arrears. In the past, the bank was entitled to foreclose the mortgage as soon as the mortgagor was 1 month in arrears. Now, the bank needs to wait until the mortgagor is 3 or more months behind with his mortgage. This measure applies to all type of mortgagors, those who qualify under the special risk parameters and those who don’t. Other changes included in this law are the limitation of the default interest and the improvement of the conditions at the point of auctioning the property in order to avoid situations where the property is sold in auction or repossessed and the mortgagor still owes the bank a very substantial amount of money.

At the same time, pursuant to the ruling from the European Union Court of Justice of the 14th March 2013 regarding abusive clauses in Spanish mortgage deeds, the Spanish Notaries are now entitled to warn and advise the mortgagors prior to the signing of a mortgage deed that contains abusive clauses. The judges are entitled as well to appreciate by themselves these abusive conditions in a foreclosure proceeding and declare them as abusive, suspending the eviction.

But how can this affect to non-residents such as the readers of this blog who are generally residents in the UK but have property in Spain? The special rights, such as those that allow stopping eviction proceedings, will not apply to non-residents as one of the main conditions is that the property affected constitutes the main residence of the mortgagor. However, some of the other improvements can benefit non-residents. This is the case of the abusive clauses detected by the Judge or the fact that the bank will not be able to foreclose on the mortgage until the mortgagor is 3 or more months in arrears.

Many people have criticized the new regulation stating that it is not sufficient to cover the needs of those who are in financial distress and in the verge of losing their houses. However, the success or failure of this new law will be determined in a few months’ time when checking the eviction ratios. If these go down, then the law will have been successful. If these continue at the same level or grow then clearly new measures will be required. My personal impression is that these measures are probably too shy and could have been more ambitious. There are many families that are in the verge of losing their main homes and for a pure matter of arithmetic or statistics will not fit in the criteria but there will be others who will benefit from this law and will get the necessary break to try to improve their circumstances and, hopefully, avoid eviction. This is better than nothing and any proposal in that respect should be welcomed with an optimistic mind. At the end of the day, this shows an intention to address a social and important problem in Spain’s society.

Dacion en pago for non-residents. Do we have a deal?

Do we have a deal?If you have read the Spanish press this week you will probably have seen plenty of articles on the Government’s new proposal to solve the current problems with those who cannot pay the mortgage.  Luis de Guindos, Minister of Economy, will announce this week some new measures to enable consumers to surrender their properties back to the bank in exchange of clearing the debt (a procedure known as “dacion en pago”).  

This would be applicable to low income families where all the family members are unemployed. The “dacion” will enable the debtors to return the property to the bank and have the mortgage debt cleared entirely. This can be positive as many property owners who are behind in their mortgages, are in negative equity and therefore owe more than what their asset is worth. Under the current rules, the borrower responds with all his personal assets and therefore the repossession of the asset does not end the debtor’s liability if the asset is in negative equity. The debtor will still owe money to the bank until he has repaid the full amount. This is extremely burdening for low income families and the new proposal will try to find a solution to the current problems enabling some families to return the “keys” to the bank and start from scratch without debts. The proposal will also contemplate the possibility of renting the property from the bank and paying the bank a “socially acceptable” rent until the debtors can get back into the employment ladder and refloat their finances.

The above will be, obvioulsy, subject to the bank’s approval but Miguel Martin of the Spanish Bank Association has already stated that the banks will be interested in co-operating and finding useful solutions for those families.

The above looks promising but unfortunately will only be applicable to those properties that form the main residence of the family. This means that non-residents owning property in Spain, such as the usual readers of this blog, will not be able to benefit from the new proposal.

So, where does the above leave non-residents who are currently struggling to pay their Spanish property? Well, the proposal has not been launched with their situation in mind. Those non-residents will have to contact their banks and suggest a dacion but the bank will not be obliged to accept these.  In fact, during my daily practice in law I have seen a decrease in the amount of “daciones en pago” accepted by Spanish banks. Some of them are even too busy to be concerned about non-residents debtors as they have more important defaults from Spain to deal with. 

I read a post the other day where the blogger indicated that a bank will not consider the “dacion” if the mortgage is in arrears. With all the due respect to the said blogger,  I have found in my practive that this is not always the case. In fact, I have seen banks telling me that they cannot consider a dacion until the mortgage is in arrears!!! Very confusing. 

In my experience the key thing is to try to keep with the payments and keep the property. Otherwise, all the money and dreams invested in the property will dissapear. However, sometimes this is not possible and therefore a person may have to consider a measure as dramatic as the dacion. In those circumstances, it is better to come clean with the bank and show all the cards. The financial situation should be explained and documentary evidence provided. Obviously, the assistance of a lawyer can also help as sometimes relevant information is lost in translation and in the peculiarities of the Spanish legal system.

So, there is some hope for Spanish based families who are struggling to pay their mortgages and are afraid of still owing a large amount of money to the bank after the house is repossesed. For those who do not live in Spain, the situation is not as good, if not worse, but Spanish banks will consider the possibility of a dacion and in some occasions approve it. 

 Photo from www.dreamstime.com

Here we go again

 

 

 

I am a usual reader of the news bulletin from Idealista.com. I like it because it comes every Friday with a summary of the most relevants news in respect of the property market. The interesting thing about this news bulletin is that it does not have any alliances and you can easily see a story talking about the improvement of the property market in Spain together with another story which is less optimistic about the same point.

This week I have noted with interest that Santander Bank has decided to get rid of all its stock of properties by the end of the year, even if it implies making some losses. It appears that Santander has organised a bid and is planning to give the properties for sale to one of the major players in the Real Estate market. Companies such as Knight Frank, Aguirre Newman and Richard Ellis will probably bid for getting the portfolio.

I am interested to see the prices of the properties. The current trend is that properties put for sale by banks are usually more expensive than those sold by developers. However, it must be said that at the same time they usually come with better mortgage offers. If Santander wants to get rid of the around 29,000 properties it has, then it better start crashing the prices because it is very quiet out there. Furthermore, it also better start softening its current mortgage criteria. Otherwise, with the current mortgage criteria which is tough across most of the Spanish banks, most of the interested purchasers will fail to get a mortgage.

Hopefully, other banks will follow this trend and this will help to reduce the current stock of properties which is affecting the recovery of the market. For those who are considering to buy a property from a bank do not forget to instruct an independent lawyer to check the legals. The fact that the property belongs to a bank does not necessarily mean that it has all the papers in place.

To summarise, great idea. This is exactly what Spain needs: bold initiatives to awake a dormant market from its letargy. But, will it work?

 

No way out?

Recently and as a result of the sum of several factors such as the unstoppable fall of the sales of properties and an increase in mortgage defaults, Spanish banks have accumulated more than 150,000 million euros in property assets. Assets which, incidentally, the banks do not want but the truth is that since October 2008, the amount of acquired houses by banks has not decreased, quite the opposite, it has continued to grow.

 
This is partly due to the so-called “dación en pago”, common and usual practice in Spain, which consists in giving the house or flat to the bank and canceling the mortgage debt or part of it, after the property has been valued. In some cases, the Dación en pago involves payment of the total mortgage debt (dati pro solute) and in others cases payment of part of the mortgage (dati pro solvendo).

However, the truth is that as result of excessive accumulation of assets by banks, the chances of banks accepting the “dación en pago” these days without an offer for sale for the property by a third party have declined.
 

 

Another strategy used by families in Spain to keep ahead and tackle debt is called “REUNIFICACIÓN DE DEUDAS”. It consists of clustering all sort of debts (including personal loans and mortgages) into a single mortgage, the monthly payments being refinanced and maturity dates being extended. This practice reduces the total monthly payments and restores the family’s or individual’s creditworthiness. The downside of this practice is that it would mean either re-mortgaging the property if there already was a mortgage in place or mortgaging the property if this was free of charges. For those without a property it would mean committing to a longer repayment plan with higher interests 

In my opinion the “dación en pago” and the “reunificación de deudas” are appropriate measures to keep afloat financially. In the case of the former, it would mean cancelling the mortgage and being able to start from scratch without debts. In the case of the latter, it would allow buying some time to make things work and hopefully be able to tackle the debt later on in a better position, mentally and financially.  These options prove much better than defaulting on debts, as this always implies legal consequences that stay with the debtor for years, whether this is bad creditor reports or the fear of being sued in Court.

Picture from www.freefoto.com   

 

Some hope for Spanish home owners in mortgages arrears

The Court of Appeal in Navarra issued on the 17th December of 2010 a Judgment that is raising hopes and expectations for home owners of Spanish properties that are today in mortgage arrears. 

Any person entering into a Spanish mortgage responds with all his personal assets for the payment of that debt. This means that, contrarily to what happens in the USA, returning the keys back to the bank is not sufficient and the bank can pursue you for any shortfalls after repossessing or selling the property.

However, the recent Judgment from the Court of Appeal in Navarra has created a precedent that could benefit thousands of borrowers. The case is as follows: the debtor signed a Spanish mortgage in 2006 for a sum of €59,390, then re-mortgaged it and increased the loan in a further €11,865.39.  The loan was secured with a mortgage on the property and the bank valued the property for repossession purposes in €75,900. The debtor failed to meet the monthly payments and the bank issued legal proceedings to have the property sold in a public auction. As no one shown interest on the property, this was assigned to the bank for a value of €42,895.

The bank then issued proceedings to claim the shortfall on the loan, interests and legal costs. Surprisingly, the district Judge rejected the application. This was then taken to the Court of appeal by the bank and, more shockingly, the Court of appeal confirmed the rejection.

It is interesting to note that in its decision, the Court of Appeal, considered that pursuing the debtor for further monies when the property was valued for this specific purpose for €75,900 was unnecessary as this amount was more than sufficient to cover the debt, interests and costs. The fact that the value of the property had declined since it was bought and the property assigned to the bank for just €42,895 was irrelevant to the Court. Finally, the Court commented on the banks’ responsibility in the current economic crisis, which came as an unexpected sign of solidarity with the people who are now struggling.

To summarise, this is a very brave decision from the Spanish Courts that can give some hope to those who purchased properties in Spain at inflated prices and find themselves in difficulties to pay the mortgage. Up until now, it was impossible to contest the bank’s rights but now it looks like there is some hope and even some legal grounds to defend some cases. As usual, each case is different and this decision cannot be extrapolated to all the cases. However, I am sure that the news will be welcome by many and looked with animosity by Spanish lenders.

I can’t wait to see how this evolves as this is not only an interesting news from a legal but also from a social and ethical point of view.

About the Spanish “swaps” in the banking practice

   Photograph by www.freefoto.com

“Swaps”. Perhaps not a word that would mean much to the people who live outside Spain but the truth is that this is a hot topic right now in the Iberian Peninsula. The reason, as always, has something to do with the banks. In this case, the word “swaps” refers to a high risk product offered by the Spanish banks to their clients from year 2006 onwards with the purpose of protecting borrowers from the risks of high mortgage interest rates.

The “swaps” were in most of the cases an addendum to mortgage loans whereby the parties, that is the bank and the borrower, agreed to subject the mortgage to a fixed interest. However, the real deal was much more complicated that what it initially looked in the sense that the agreement was linked to the fluctuations of the “Euribor” (this is the interest rate for which European banks lend money to each other) and therefore if the resulting interest rate was higher than the agreed rate, any excess would be covered by the bank. On the other hand, if the resulting interest rate was lower than the agreed rate, then the borrower was obliged to pay for the difference. And this is exactly what happened in late 2007 onwards. The “Euribor” went down noticeably due to the worldwide financial crisis and those borrowers who were benefiting from the “swaps” agreement suddenly ended up paying much more for their mortgages.

It then emerged that the “swap” was an ideal product for the good times, where interest rates are usually higher but a real pain for recession times, where interest rates decreased to historical minimums. The problem is that most of the borrowers who entered into this type of agreements had no idea of the potential risks involved. They were under the idea that they were contracting some sort of insurance that would freeze the mortgage interest rates for a few years and therefore protect them from escalating interest rates.

The above has caused a recent trend to sue the banks asking that those agreements be declared null and void and that large compensations be paid. The reasoning behind those claims is that the “swap” is a complicated and high risked product that should only be offered to individuals with a minimum financial knowledge. Both, the Spanish Consumers Act and the Stock Market Act as well as the European regulations in this field, impose banks and financial entities the obligation to carry out a test on the clients to ensure that they have enough financial knowledge to understand this type of agreements. We are now seeing many cases where those tests were not carried out. Furthermore, recent Court decisions have shown that the terms of the “swaps” agreements were sometimes even too complicated for the own staff at the bank.

Hundreds of claims have been lodged recently and a relevant part of them have been successful. Obviously, this does not mean that all claims can be successful as each case is different but the truth is that the Spanish Courts are and will be inundated with this type of claims for a while.

Struggling Britons seek ways to offload Spanish holiday homes

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Higher mortgage interest rates in the Eurozone, a fall in the value of the pound and the effects of the recession mean that many Britons who have bought holiday homes in Spain are now struggling to meet their monthly repayments.

Our firm has seen a rise in the number of people seeking help to renegotiate their Spanish mortgages or advice on alternative options.

The increase in mortgage interest rates from 2.5 to 5 per cent in Spain and the weaker pound have both increased the cost of mortgage repayments. However, buyers who allow their homes to be repossessed could face consequences in the future.

Under Spanish law a borrower is liable with his own personal assets for any mortgage signed in Spain. Where a home is repossessed by the bank and sold and the value is not enough to cover the outstanding mortgage, interest and costs, then the bank will be entitled to claim against the borrower for the shortfall. In the case of UK residents this could mean the lender issuing proceedings in the UK. 

The borrower could also be put on a register of bad debtors and be blacklisted in Spain for six years. This may not worry UK residents who decide to leave Spain. However Spanish lenders are fully aware of the importance of credit ratings in the UK and are now exploring ways to pass on information to UK databases.

Some are looking into signing reciprocity agreements under which they can share information with companies in different countries. Ultimately UK residents who default in Spain may find their credit history affected back in the UK. A decision by the European Court of Justice on 23 November 2006, which clarified the circumstances in which financial institutions may exchange this type of information, has brought this scenario a step closer to reality.

Options for homeowners in financial difficulties include renting out the property, extending the mortgage term or remortgaging, or ‘dación en pago’ in which the property is transferred to the bank in lieu of the outstanding mortgage.

Whatever the situation, handing in the keys and simply walking away is one of the worst things you can do. It’s worth exploring the options as a rash decision could come back to haunt you at a later date.