European Court of Justice new ruling on mortgage claims. There are many good things to be said about Spain, from its weather to its fantastic food and welcoming people. Sadly, its banking system and its supervisors are still in need of an update. In the decade since the financial crisis, European courts have continuously corrected Spanish courts in their decisions about Spanish bank practices. Most of them have had to do with mortgage clauses that were later considered illegitimate. The most famous is the clausula suelo or floor clause, which established a minimum interest to be paid that was usually higher than the standard EURIBOR reference index.
Del Canto Chambers have been busy these past decades winning cases for clients in Spain and the UK. In fact, for many Brits there was an added value in hiring Spanish lawyers with extensive knowledge of the local system, but who also had a base of operations in the UK.
Since it is important to follow these developments closely, here we will review the two most important updates for borrowers to make claims against Spanish banks. It will be particularly relevant for those British owners of Spanish homes who might feel disconnected from news on the continent.
Claiming the IRPH or Index Reference for Mortgage Loans
Early in 2020, the first corrective ruling from the Court of Justice of the European Union (CJEU) emerged on 3rd March. The court’s judgement acted on a referral from Spanish courts, on the issue of the IRPH (Indice de Referencia de Precios Hipotecarios) or Index Reference for Mortgage Loans. The reason for its illegitimacy was its inclusion on mortgage contracts by banks, without acting with full transparency towards clients. The latter should have been informed of the index’s difference with regard to EURIBOR, the most employed index. The IRPH has historically reached higher interest rates, but was portrayed as being stabler than EURIBOR and therefore more favourable for new mortgagors.
According to various calculations, the IRPH is present in about one of every ten mortgage contracts with Spanish banks. The consequences of using this index, rather than EURIBOR, could have resulted in an additional interest of around €5,000 for a twenty-year average mortgage of €140,000-160,000. The outcome of this judgement has meant that courts dealing with a claim will now have to pay attention to transparency at the time of signing the mortgage.
What happens if a client wants to claim the IRPH? Court is not the first step. Actually, it is important to send all relevant documentation (deeds, amortisation, payment bills) and make a formal request to the bank. Now, if the bank rejects the claim or offers an amount that does not seem legitimate, then the client has the right to involve the courts. During the lawsuit, the mortgagor will have to prove that the bank was not transparent enough; and the judge will have to decide whether the clause should be excluded from the contract. If this ends up being the case, the claim to be repaid will be established by analysing the difference between IRPH interest rates and average market rates (usually, EURIBOR).
In future loans, banks will have to inform clients of the consequences of using one or another index, its development over time and its differences with other indexes. In practice, what this means is that since Spanish law does not enforce a particular reference index, banks should not be able to impose one without discussing it with clients. Contracts should have transparent and understandable language, and clients must confirm that they have understood its clauses.
Recovering unfair mortgage costs: tasación, gestoría, notaría
An additional correction to Spanish banks (and courts supervising them) came last July 16th, again from Europe. The decision affected mortgage costs that had been challenged at courts in Palma de Mallorca and Ceuta, involving BBVA and Caixabank. These mortgage costs included opening fees, appraisal (tasacion), inscription of the deed (gestoria) and notary (notaria). Many of them are bundled together in mortgage contracts. According to the most recent decision by the Supreme Court, these costs should be shared equally by the bank and the client.
However, the CJEU determined that banks had to bear this cost, with retroactive effects. It was illegitimate to bundle mortgage contract costs and adding them to total costs, without explicitly linking them to services provided by the financial entity. In other words, clients could reclaim costs if banks had ineffectively justified these fees. The European Court agreed with the Spanish establishment of a five-year period to make these claims from the moment they are considered legitimate. The European Court also ruled that clients who showed their mortgage to contain illegal clauses would be exempt from covering litigation costs. Regrettably for many Spanish bank clients, these decisions did not retroactively affect the IAJD duty (Impuesto de Actos Juridicos Documentados), which new borrowers have not had to pay since 2018.
Spanish associations for borrowers estimate that around eight million people could be affected by the judgement. Again, for an average €140,000-160,000 mortgage, these claims could amount to €3,000. As with the IRPH, the first claims must be made directly to the bank, and litigation only pursued if the financial entity rejects the claim. The key costs to be examined include appraisal (tasacion), inscribing the deed (gestoria) and notary (notaria). The main argument for claimants is to show that the bank added charges to the mortgage without justifying the specific services offered in return.
Ultimately, 2020 has been another busy year for courts in charge of dealing with Spanish bank claims. It is clear that millions could benefit from these new judgements, but many of them find it quite difficult to understand their own mortgage documents. In the case of British clients assisted by Del Canto Chambers, most of their issues have to do with the fact that different banks have employed diverse terms to disguise this illegitimate fees. The best option for any borrower, British or Spanish, is to check their mortgage contracts with one of our experts, and see if they can recover any claims from their Spanish bank.
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