Mortgages set up with variable interest rates are often linked to an official interest rate (the EURIBOR) with an added margin which is effectively the lenders profit.
If interest rates rise or fall the the mortgage payment will reflect that.
To insulate everyone from the effects of wild fluctuations in interest rates a loan agreement may include a mechanism by which they are sure that the payments will not go too low or too high or CAP and FLOOR clauses.
These schemes if used fairly and properly allow for some certainty when parties are seeking to plan their financial commitments over time and were regarded as a sensible measure.
However in Spain, over time the banks manipulated these mechanisms to unlawfully take more profit and the Spanish Supreme Court and legislature have now issued a Decree to give borrowers the right to claim back their losses.. hence SPANISH MORTGAGE RECLAIM.
The problem started at the start of this century when thousands of properties were sold every year in Spain with mortgages agreed to finance those purchases.
The banks and the developers were eager to make loans sound cheap and affordable and they were competing with each other to make their loan appear the cheapest.
So they would often advertise those loans as being at base rate ( or EURIBOR) plus 1% or even lower.
Since the EURIBOR was low throughout that time it sounded really attractive especially if you rented the property out. MONEY FOR NOTHING AND YOUR BRICKS FOR FREE!
Few borrowers would read the whole mortgage agreement before signing it, let alone have it translated and fully explain by an independent accountant or solicitor.
There were a couple of years at a fixed rate, often 3.25 %, but that was just the beginning – for 15, or 20 or more years the monthly payment was going to be ridiculously low.
The buyers jumped on these offers – at the peak of the property bonanza (between 2004 and 2006) one million properties were sold every year in Spain.
After signing the agreements, the borrowers started repaying the loans for the first couple of years, at the initial fixed rate, expecting a drastic reduction of the payments once they go to variable.
However, after some years into the term of the contract, the monthly repayments went up. They called their banks managers commenting on a mistake in the last month’s charge, but the reply they got was that there was nothing wrong with the charges – these were correct, all made as per the agreement.
It was in the agreement. Going down to the smaller print of the mortgage deeds, conveniently hidden amongst the endless and tedious legalities (a mortgage agreement has normally about 50 pages of complex verbiage, hard to understand even for a Spaniard not completely familiar with the legal jargon)
The clause that simply was to make the headline rate “EURIBOR plus 0.5%” totally futile, completely irrelevant, as good as not actually entered in the contract. This was the floor clause.
No one mentioned it to the borrowers initially, but somewhere in the contract there was a clause setting the floor and cap levels.The floor clause meant that regardless how low was the benchmark or official mark linked to the mortgage (EURIBOR), there was a floor in place: a minimum interest to apply to the mortgage every month.
For instance, if the floor clause is set at 4 %, it didn’t matter that the rate of reference rate would go down to 1%, because if the sum of this rate to the spread gives less than four, then 4 % would be the interest to pay.
The borrowers complained about it to their banks in two ways, closely related one to the other: firstly, it is unfair that they do not benefit from the cut in the interest rates of the reference rate (the EURIBOR has been below 2% for 4 years now, from 2009 to 2013.
However, the banks refused firmly to discuss it, retorting in all cases to the same reply – you signed the agreement freely, and now it’s final in all its clauses enforceable, there’s nothing they will do about it.
Since the banks refused to consider negotiation so the claims started to reach the Courts, all based on the same grounds; that something essential to the agreement, such as the cap and floor clauses, should have been explained precisely and more into detail, not hidden in the small almost microscopic print.
Some Courts favoured the banks noting there was an agreement and witnessed by a Notary.
However, the Higher Courts ruled in the same direction in their pronouncements of the the many appeals Moreover the general rules on financial contracts state that the essential clauses of an agreement (including the interest rate ) must be discussed individually and must be stated clearly in the document to sign.
The Supreme Court issued a historical Judgement (May 9th 2013) ruling illegal all floor clauses entered in the mortgage contracts from BBVA and two other Spanish banks.
It concluded that the Courts must protect the weaker party in an agreement, usually the consumer against the lender.A clause is abusive when: a) it limits only the rights of the consumer, and b) it has not been negotiated and discussed individually between the parties.
The professionals (the banks) must prove that they offered to discuss the essential clauses individually, and has offered the consumer (the borrower) alternatives.
Any clause deemed abusive must be taken off the agreement, retroactively, i.e. not from the moment it’s declared abusive, but from the date the contract was agreed.
Very recently the Spanish Government decreed that the banks must set up mediation processes to address this. However much to the disappointment of consumer groups there are no sanctions if they simply set up the name of a process and then refuse to make any payments.
So although you now have a very clear right to compensation it still requires expert advice and representation so that the bank knows you have the wherewithal to take it to court if necessary. There appear to be a lot of websites setting up offering no win no fee arrangements but perhaps just then sitting on a case hoping it becomes an easier task in years to come rather than having to ensure that the appropriate experienced Spanish lawyers are in place.
Feel free to mail or call us and very quickly we can assess your chances of recovery.