GOOD NEWS: SPANISH BANKS ARE LOSING THE BATTLE AGAINST THE “FLOOR CLAUSE”. OUR LEGAL OPINION
Dear readers, clients and friends,
For those people who might have a mortgage in Spain at the moment, this article will surely be of great interest to you.
As you might probably know, the Spanish Supreme Court has recently ruled that the “Interest rate floor clause” can be declared abusive if the client/consumer was not duly informed before the signature of the mortgage contract at the Notary, about its content and implications, in a clear, transparent and comprehensive way.
Last September 2013, the Supreme Court clarified a judgment delivered in May 2013 declaring floor clauses null and void if they breach the levels of transparency demanded by the European Consumer Directive. The clarification stated that within the context of a mortgage contract, the infringement of the indicated criteria was sufficient grounds for these clauses to be completely nullified.
This specific floor rate clause imposes a limit on the extent to which consumers can benefit from lower borrowing costs, should the reference index used to set mortgage rates fall — in Spain the one-year Euribor interbank rate is usually used. (for instance 3,25%). In simple terms, it defines the lowest percentage of interest to be applied to the payments the borrower is to pay.
In Spain that percentage is most usually measured according to the Euribor, (European borrowing rate). The problem is that if the floor clause is too high and the Euribor rate is below it, no matter how low the Euribor might be, the mortgage payments will never go down below the threshold of the floor clause
On the other hand, the “ceiling rate clause” (or “cláusula techo” in Spanish), marks a limit to the maximum percentage of interests to be applied to the liquidation of the mortgage. This clause can be also abusive because if it is too high, then it will not serve its purpose, which is to maintain an average monthly instalment through out the duration of the whole mortgage contract.
Subsequently, in practice, the bank always wins, either:
a) if the interest rate goes too high, as the client will end up making sky-high payments,
b) or alternatively, if the Euribor goes down, (like the situation at present) the mortgage monthly payments will still be high due to the abusive floor rate clause, below which the applicable percentage will never go.
The problem with this unfair clause is that many unreliable banks mentioned it (together with the “ceiling rate clause”) but in small print, without informing clearly to their clients even about their existence.
As a result of these landmark EU as well as domestic Court decisions, we have been receiving a lot of enquiries over the past few months, so in order to clarify the current situation to our readers, I would like- if I may- to briefly explain some of the most frequent questions and doubts posed by our clients. For example:
1º) How can I know if I have an abusive clause in my mortgage contract?
You will need to ask your bank for a copy of the MORTGAGE CONTRACT (MORTGAGE DEED) signed before the Notary. If the bank might refuse to give a copy to you, remember that you can actually get a certified copy or a “copia simple” directly from the Notary where you signed the Title Deed for acquisition of the house.
2º) If I have a “floor rate clause” (cláusula suelo in Spanish) in my mortgage contract- what can I do about it. Can the extra interests unduly charged by the bank be claimed back? Is it really worth going to Court?
ABSOLUTELY YES. Getting your money back is indeed possible, but if the bank might refuse to reach an “out of court settlement”, it will be necessary to go to court, involving time and some costs.
In fact, we have already won a few Court cases against banks and we are currently preparing new lawsuits on behalf of an increasing number of English people affected and we are very confident about their outcome.
However, first of all, we must clarify that the objective of these claims will not be the extinction of the mortgage, but more specifically:
A) The removal of ALL the abusive clauses (usually a mortgage contract contains several abusive clauses that go hand in hand with the floor clause).
B) The removal of the FLOOR CLAUSE, with RETROACTIVE EFFECT, which means that all the past interest rates overcharged will be reimbursed to the client.
C) Likewise, for those affected, the change of the abusive so called “CAJA” INTEREST RATE. Many consumers are paying a fortune because they were never informed about the possibility to hire the EURIBOR RATE, much more beneficial to the borrowers.
3º) What if the bank might accept to remove the clause in order to avoid litigation, should I accept?
Watch out, because your Bank might be trying to delude you!!!
Bear in mind that some greedy Banks might still try to play you for a fool, by using all kind of dubious tricks, aimed to keep getting even more money from you, despite the removal of the abusive floor clause.
For instance, we have detected that some Banks have recently provided clear instructions to their staff aimed to convince those clients who claim the removal of the mentioned clause, to change the original mortgage interest conditions, into a highly disadvantageous fixed rate type or alternatively by maintaining the same variable interest type, but with a higher differential rate or even with other hidden defective mortgage modifications.
On the other hand, some banks will also try using unethical blackmail tactics. For example, they will readily accept the removal of the abusive clause, but in exchange of forcing you to hire some additional financial products, like house or life Insurance, risky financial products, etc.
Likewise, another commonly used trick consists of offering the client, the accumulation of all the debts in one new mortgage loan, also called reunification of loans. Beware! Apparently, the monthly quote might seem more attractive to you, but in reality, be very careful, because you might end up paying to the Bank much more costs and expenses, with higher interests and for longer period of time!!
4º) If I decide to go ahead, what is the actual process of claiming against the banks through the Courts? What paperwork is needed?
Firstly, we would enter into negotiations with the bank, aimed to reach and out of Court settlement that might avoid protracted litigation. In practice, very few banks are accepting to negotiate. The majority are very arrogant and stubborn and they refuse liability based on the most absurd grounds.
Secondly, regarding the documents required, it will be needed a copy of the MORTGAGE CONTRACT (MORTGAGE DEED) as indicated before. Likewise, a copy of the bank statements showing the amount of money paid in capital and interest since the beginning of the mortgage would be extremely useful.
5º) If I take the bank to Court, should I stop paying the mortgage?
Not exactly, the correct procedure would be to request the Court to deposit or allocation the monthly amounts handed over into a designated Court’s account. Otherwise, some reckless banks might try counterclaiming against you by starting a repossession eviction procedure. That Court scenario is highly inadvisable.
6º) What can I do if at the worst scenario, I have no money at all to keep paying an expensive mortgage?
Well, it is not the same to take the initiative and sue the bank, that waiting for the bank to sue you for default payments. The second scenario can become more complex. However, we are currently dealing with a few cases like this, where the bank already took our clients to Court in order to repossess his house and we have managed successfully to stop the unfair repossession by invoking the existence of abusive clauses in the mortgage.
Therefore, in conclusion, if you think that your mortgage might be affected by abusive clauses,-such as the floor clause,-as a preliminary step, we suggest that you might kindly ask your bank to remove immediately the floor clause from the mortgage Deed but with no condition at all. Remember, that even if you might be national from another country, you have the same rights as a Spanish consumer!
Secondly, do not sign any new novation agreement with the bank without consulting with a legal professional expert like our Firm.
Third, if the bank might stubbornly refuse to remove the floor clause, please do not hesitate to contact us for further advice.
We will be glad to help you in order to claim the nullity of your “floor clause” as well as to claim the refund of the interests overpaid paid on your mortgage contract. Considering that according to experts, the Euribor is likely to increase within the next 2 years, time is of the essence, as failing to take speedy legal action now, might involve losing more tan 3.000 euros later on!! Subsequently, if you might finally decide at the worst scenario, to sue your bank, bear in mind that the sooner the better!
We hope this information is useful and should you have any additional question, please visit any of our two websites: www.ricorabogados.com or www.englishsolicitorinspain.com
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Thank you very much for your attention and permanent support and we look forward to helping you!
Mr Oscar Ricor “NON-PRACTISING ENGLISH SOLICITOR IN ENGLAND AND WALES”, under the “Solicitors Regulation Authority” (SRA) SRA number 519196 and practicing Spanish Solicitor