Homeowners Can Now Claim Compensation for Unfair Spanish Mortgage Clauses

January 23rd, 2017 | By licnewsadmin

The government in Madrid has outlined the process for up to four million homeowners to claim compensation for unfair Spanish mortgage clauses.

Through the property boom, many Spanish banks offered mortgages with attractive introductory interest rates followed by a variable rate linked to EURIBOR. Unfortunately for many homeowners, the mortgage agreements also included a “clausula suelo” – a floor interest rate that would apply should the EURIBOR fall below a certain level.

The clauses advising of the floor interest rate were often buried deep within lengthy and complicated mortgage agreements, and often overlooked. Consequently, once the introductory period had finished, homeowners found themselves making increased mortgage repayments, even though the EURIBOR rate had fallen to historic lows.

Homeowners who tried to claim compensation for unfair Spanish mortgage clauses initially got little sympathy from the courts. Judges typically agreed with the banks´ interpretation of the law that it was the homeowner´s responsibility to understand the mortgage agreement before signing it – despite the clause being reportedly responsible for 90% of mortgage defaults and home evictions.

In May 2013, Spain´s Supreme Court found that the floor interest rate clauses were unfair and should be voided in mortgages sold by Spain´s second biggest lender – BBVA. A class action followed and, in April 2016, a judge in Madrid´s commercial court ruled that forty banks should refund the “quantities improperly charged” to more than 15,000 homeowners.

The ruling was questioned by the European Commission for only backdating the compensation for unfair Spanish mortgage clauses to May 2013. Commissioners wanted to know, if the clauses were to be voided, why they were not voided for the life of the agreements. The court´s response was that to pay the full amount of compensation for unfair Spanish mortgage clauses would cost €4 billion and cripple the already-struggling financial sector.

Nonetheless, in December, the EU Courts of Justice ruled that homeowners were entitled to a full refund of the interest they had been overcharged, plus interest on the overcharged amount. Concerned about a rush of claims for compensation for unfair Spanish mortgage clauses, the Spanish government have acted quickly and, last Friday, issued a decree about how the claims process should proceed.

Spain´s Economy Minister – Luis de Guindos – announced that the liable banks should identify and write to each homeowner with floor interest rates in their mortgage agreement, and offer them compensation for unfair Spanish mortgage clauses. The banks have three months in which to do this, while homeowners will have fifteen days from receipt of the offer to decide whether to accept it or negotiate a better settlement. If an agreement cannot be reached within three months, homeowners have the right to claim compensation for unfair Spanish mortgage clauses through the courts.

Some banks have already indicated that they will not fully comply with the decree. The BBVA has said that, where the bank can identify the homeowner was represented by a financial or legal professional, they will not consider themselves liable for the failure to advise the homeowner of the clause. Banco Sabadell has made a similar argument for cases in which it believes the mortgage agreement was “transparent”.

Due to the potential for claims for compensation for unfair Spanish mortgage clauses to be contested, Spanish property owners in the UK are advised to seek professional legal advice at the first practical opportunity.

Categories: Financial Claims

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