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

 

Returning the keys back to the bank

morguefile com1 (2)A REAL CASE OF A SUCCESFUL DACION EN PAGO

This is a real case that we saw in the office some months ago. For obvious reasons, no names will be mentioned. The important thing is what happened and how the matter was resolved. Let me explain what happened.

 

In year 2006 two friends bought a property in Spain in the peak of the market for the amount of 200.000 €. In that year, the housing prices were high due to the excessive demand and banks granted mortgages like bakers bake muffins: one after the other.

Spanish banks were happy to lend monies because property prices were continuously rising like there was no tomorrow. These two friends got a mortgage for 180.000 € and therefore only had to put 20,000 € from their own money plus another 20,000 for taxes and fees. Total investment into the property was 40,000 € and the rest was brought by the bank.

Not much later the real estate bubble bursted in Spain. Consequently, the housing market declined, housing demand plummeted drastically, the value of the properties decreased and people were not able to pay their mortgages. Banks repossessed the houses and they sold them out in auction; therefore, there were more properties in the market and prices decreased more and more.

In 2014 the two friends realised they could not face the payments of the mortgage and they stopped paying regularly. They also contacted our firm for advice. We informed them that there is an option for people like themselves who are prepared to surrender the keys to the bank and be freed of the mortgage. It is called “dación en pago” and it involves signing a deed whereby the property and title are handed to the bank in exchange of the redemption of the debt. It is not a great solution as it usually involves writing off any investment and money put on the property but at least allows the clients to clear their bad investment in Spain and start from scratch in the UK with no debts. These clients were prepared to take this route and therefore instructed us to talk to the bank and start negotiations.

We contacted the bank, explained our clients’ situation and pushed for a dación en pago. The bank came back to us saying that the value of the property was lower than the mortgage. There was a 30,000 € shortfall and this shortfall had to be paid somehow. In layman terms, the property was now worth 160,000 € and they still owed the bank 190,000 €. The bank wanted to recover the 30,000 € shortfall and the solution offered was that the dacion en pago would be accepted provided that the clients signed a personal loan for the remaining 30,000 €. This option was not entirely satisfactory to the clients but they were prepared to sign the loan if the conditions were affordable.

A few weeks later and while we were in the process of waiting for the bank’s proposal, a debt collection agency was appointed to deal with this matter. The property was valued again and we took the opportunity that a new person was dealing with the file to explore the possibility of a full dacion en pago. We are not sure if it was pure luck or persistency (I have got the feeling that their valuation came higher than they initially thought and probably saw the potential of the property) but the debt collectors accepted the offer of a full dacion and suggested a date for the signing of the dacion. This was excellent news for the client as a full dacion consisted in handing the keys and the title to the bank in exchange of the clearance of the debt. Exactly what they wanted. The only requirement placed by the bank was that the property was transferred up to date of taxes and management fees. These were paid by the clients and we proceeded to sign the necessary deed of dacion en pago which freed the clients from this burden.

It was not the best outcome as this meant losing any investment put into the property but clients got rid of a massive debt that was affecting their finances. Furthermore, clients were aware that if they defaulted in the mortgage, the bank would repossess the property and eventually come after them in the UK for any shortfall due (and believe me there is always a shortfall). A slightly happy ending to a bad story. Obviously not all stories are like this and not all property owners want to get rid of their properties in Spain. Most prefer to keep them and enjoy them during their holidays. Others prefer to let them and wait until the market recovers. However, for those where the mortgage is a burden, there is always this possibility. It is not the panacea but it could allow a person who is struggling financially to clear some debts and start from scratch as a new person with no debts.

 

 

 

CHANGES TO THE SPANISH LEGISLATION REGARDING FORECLOSURE

 

Blog 3

 

 

 

 

 

 

 

 

 

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.

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?

 

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.