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Purchase contracts in Spain and the COVID-19 Corona crisis

Written by Gustavo Calero Monereo on . Posted in Andalusian, conveyancing, coronavirus, costa del sol, english speaking solicitor, judgment, lawyer, legal advice, malaga, mortgages, nerja, Property law, purchase process, Sin categoría, solicitor, torrox.

Purchase or sales contract during COVID / Corona crisis
Purchase or sales contract during COVID / Corona crisis

It is clear that the healthcare crisis caused by the Coronavirus (COVID-19) has had a huge impact on all areas of our daily lives. The state of alarm decreed by the Spanish government, as well as many other governments in foreign countries, has caused movement restrictions and limitations, the closure of the airspace, the paralysis of the business fabric and government agencies, etc. People’s everyday lives have been severely affected from a social and economic standpoint.

With this article, we would like to respond, as much as possible, to the doubts and uncertainties of foreign clients buying homes in Spain, as well as their sellers. We are referring to sales between individuals that were already underway with signed contracts but which were ‘surprised’ by the COVID-19 crisis and the measures adopted by the Spanish government decreeing the state of alarm.

At the end of the article, we will comment briefly on the legal situation of sales of new homes or off-plan sales from developers.

What does Spanish law say on the fulfilment of purchase contracts?

The first thing that must be said emphatically is that, under Spanish law, the clauses agreed in a contract have the force of law and, therefore, the parties are required to fulfil them. In other words, the impossibility of fulfilling what has been agreed in a contract is an exception and is interpreted very restrictively.

The Spanish Supreme Court, when dealing with potential breaches of contract and to avoid the loss of the money paid, has established that the party in breach has to evidence and argue the reasons behind said breach, as well as prove that it did everything possible to perform the contract.

However, even after establishing the impossibility of complying with the contract, if it is possible to amend or adapt it so it can be fulfilled, the parties must seek to modify the contract in that way, to solve the problem arising from the situation caused by the state of alarm and the COVID-19 Corona crisis. In other words, when faced with the potential avoidance of the contract by one of the parties, they must always attempt to reach an agreement to fulfil it.

Which property sales could be affected by the state of alarm?

In my opinion, the conveyance contracts that may be affected are those that required either of the parties to fulfil a requirement or condition agreed in the contract before the execution of the public deed of sale and that condition is affected by these months of paralysis.

Due to the paralysation of activities and movement limitations, it is very possible that some of the requirements established in a conveyance contract cannot be fulfilled, as the estimated time to process or manage these were calculated based on a normal situation, which has not existed since 13 March. As an example, we can mention the following:

Purchase contracts in the state of alarm:

  • For the conveyance contract to establish the condition of being granted a building permit or the record for legalisation of a home, such as DAFO in rural homes in Andalusia. As city halls are paralysed or working at minimum levels, it is very possible for these applications not to be processed until the state of alarm is brought to an end.
  • For the condition to be obtaining a Spanish mortgage. If the appraiser cannot travel to visit the property or the bank’s risk department is not operating, this process will be paralysed, making the average resolution time much longer than initially expected.
  • For the date of signing the conveyance contract and recording it as a public deed to coincide with the period of the state of alarm and/or the restrictions on commercial flights, making it impossible for either of the parties to attend the notary office.
  • The impossibility to obtain an NIE (foreigner’s identification number.), which is necessary to sign a conveyance contract before a notary and pay the corresponding taxes. The processing of these documents is currently suspended. The national police stations in Malaga that we asked don’t know when they’ll be able to open to accept new NIE applications.
  • Either of the parties being admitted into hospital or in quarantine.

What should the seller and buyer do in this situation?

Well, the first thing is to see if the private contract contains any clause that governs these situations since, as I’ve mentioned, the sales or purchase contract has the force of law and binds the parties. However, in conveyance processes where the deed cannot be signed for reasons arising from the coronavirus crisis, what both parties should do would be to amend the contract and extend it, to give time to the party that needs it in order to complete the sale. In most situations, it is only a matter of time for that circumstance or condition that is currently impossible to fulfil to be fulfilled later on.

Likewise, in the event of inflexibility and the refusal of either of the parties to grant such an extension to the conveyance contract, in most cases there would be no legal grounds to terminate the contract and/or claim damages. As mentioned above, the parties must always attempt to reach an agreement to comply with the contract.

Is it possible for the buyer to terminate the contract due to the COVID-19 crisis?

Withdrawing from a conveyance contract due to a sudden drop in house prices and in the face of an economic crisis is a complex issue. In this case, we are referring to the buyer having to accredit meeting one of the requirements established in case law for terminating purchase contracts, this being that there has been an extraordinary change in the circumstances leading to the execution of said contract.

In other words, the buyer would have to evidence that the current economic crisis, resulting in a deep and prolonged economic recession, could be openly considered an economic phenomenon able to generate a severe disruption or change in the circumstances leading to the execution of said contract.

In Spain, the courts have been rejecting the possibility to terminate a sales or purchase contract based on this circumstance. However, this possibility should not be ruled out and individual factors should be analysed, such as whether the home will be a primary home or a holiday home, if the buyer was in need of mortgage financing, if the financial situation of the buyer has changed significantly, etc.

What is the buyer’s situation in the sales process?

With this question, what we want to address is the situation of a buyer who made a decision to purchase a home at a specific price a few months ago, based on an economic situation that is in no way similar to the current one.

Let’s imagine Dutch, Belgian, English, Swedish or other foreign people who wanted to invest in property in Malaga or the Costa del Sol, either to obtain a profit or to let it. Clearly, the sales price they agreed was based on the value of that property under the earlier economic situation. For instance, let’s imagine a home in the historic centre of Málaga or Nerja, highly sought-after areas with tourist attractions before COVID-19, with great possibilities for letting in the tourist market, which is currently suspended.

Well, as a buyer, in the event that continuing with the purchase of the property would lead to incurring significant levels of debt, the first thing to do would be to analyse two things:

  • The amount of money paid to the seller (usually 10% of the purchase price). Whether the buyer is willing to lose that money, essentially due to thinking that it is better to lose the money and not buy the property.
  • The content of the purchase contract clauses agreed in terms of what happens when the buyer breaches the purchase contract. This is an important issue because a breach of contract could lead to different legal situations. The usual process is to execute an earnest money contract, which entails losing the money paid to the seller, leading to the termination of the contract, this being the clause that our firm usually agrees in conveyance contracts. However, if this is not properly drafted in the contract, it is possible for the seller to be entitled to require the buyer to comply with the purchase contract and sign the public deed, even if the buyer agreed to lose the earlier money paid. Obviously, this claim from the buyer would have to be addressed in judicial proceedings, which would take years before the parties get a resolution and usually sellers settle for keeping the money paid as a deposit.

What is the seller’s situation in the selling process?

For sellers, they are most likely the most interested in completing the sale of the home as, certainly, the price set in the sales / purchase contract signed before COVID-19 will be higher than what they can obtain in the short or medium term. Without a doubt, the current situation will lead to a general drop in house prices, even though no one knows how long this will last.

That said, it is possible for sellers who already have a signed contract and who see that buyers are hesitating to complete the conveyance to be interested in making it easier for buyers to complete the purchase. In other words, in this context, negotiating a lower price so that the seller can sell doesn’t seem far-fetched. In the end, the price drop would depend on whether it is very important for the seller to sell right now or they can wait, or whether the money already paid by the buyer is enough compensation for the seller to agree to keep that amount as a penalty instead of negotiating.

What is the situation when purchasing new builds or off-plan homes?

In sales of this type, in terms of the performance of the contract by the buyer, the situation is the same as explained above, in terms of both compliance with the contract and its termination clauses. In my opinion, the buyer’s potential doubts would be determined by the progress of the works and the expected completion date of the development, also thinking about the financial solvency of the developer.

If the buyer signed the sales contract over one year ago, when the market was experiencing a good time and prices were rising, it is very likely for the price agreed at that time to be lower than what they could find at the beginning of this year, for instance. On the other hand, if the works are close to completion, there would be little doubt as to whether the developer will complete them, as they would be almost completely sold and few buyers would be thinking about terminating the purchase contract, since they would have already made significant payments on account for their homes. In this case, the scenario for the buyer is safe.

In the case of developments where construction has not yet started but which were already being marketed, with expected completion likely coming in a year or two, the scenario is different. In this case, buyers who are in doubt and recently signed the private contract must assess the price of the property and its completion date, as well as find out the number of homes with signed contracts sold by the developer, in order to make a decision. However, if the private contract has not yet been signed and only a reservation had been agreed with the developer, they can withdraw from it and recover the amount paid. They can also wait longer, as developers are likely to lower prices, depending on how long the crisis lasts.

In terms of the solvency of developers, due to the obligation to guarantee all the amounts paid during construction once the private contract has been signed, the buyer would have complete legal certainty in the event that the developer is unable to complete construction. This situation is in no way similar to the 2008 crisis, where many buyers lost their payments on account.

Individual review situation purchase contracts

However, these sales processes starting prior to the COVID-19 crisis can lead to complex situations that should be analysed individually and always with the advice of a lawyer. This is not the time to make decisions without the appropriate legal knowledge, taking into account that a private conveyance contract has already been singed. Rushing is never a good idea.

 

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, (Málaga, Andalusia)

 

Köpa hus i Malaga

MORTGAGES IN SPAIN TO BUY PROPERTY

Written by Gustavo Calero Monereo on . Posted in banks, costa del sol, english speaking solicitor, Headline, hipoteca, interest, lawyer, malaga, mortgages, property law, solicitors Nerja.

Mortgages in Spain to buy property
Mortgages in Spain to buy property

Fixed rate, variable rate interest & Euribor

If you want to buy a property with a Spanish mortgage you should know that the standard in Spain is the variable interest. The Euro Interbank Offered Rate, also called Euribor, is the reference rate for variable-rate mortgages and is currently at very low levels. Most mortgages in Spain are established according to the Euribor plus the interest rate offered by the bank.

Some banks offer fixed-rate mortgages but the number of fixed-rate mortgages obtained in Spain is very low compared to that of variable-rate mortgages.


A mortgage in Spain or another country?

If you are non-tax resident in Spain and you are thinking of getting a mortgage to buy a home in Spain, it is very likely that a bank in your tax-residence country can offer you a better interest rate than a Spanish bank. Therefore, you should try to find out which banks in your country give mortgages in Spain.


Ways to reduce the interest rate 

In Spanish mortgages with variable-interest usually offer a series of extra products are offered that may reduce the interest rate of your mortgage loan. Each of these financial products / conditions can reduce the interest rate between 0,25% – 0,50%, with a maximum of non residents of 0,75% en 1,00%.

Some of these products / conditions are:

  • Setting up a direct credit of your salary or pension
  • Keeping a minimum monthly balance in the account linked to the mortgage
  • Signing up online banking or a virtual mailbox
  • Direct debits of service companies (water, electricity, taxes, etc.)
  • Having a debit/credit card
  • Having a pension plan with a minimal yearly contribution
  • Taking a life insurance and a house insurance / contents insurance


Starting the procedure with the bank

If you already know the bank where you want to apply for your mortgage, we suggest that you apply for the financial approval of the mortgage.

At this stage you will provide the bank with a complete list of your income and loans as well as your employment status and the amount of the mortgage loan you need. The bank will enter all these details into the system and tell you if they would approve the mortgage at your income level.

Through this, you can save time and money since you can find out, right from the start, that the bank will not give you a mortgage and it will not be necessary for you to provide all the financial documentation at the beginning. Besides from this it´s not necessary yet to pay the taxation of the property by the bank. This documentation for the bank, by the way, needs to  include an extract (´nota simple´) of the Land Book Registry, the Registro de la Propiedad, of the property you are interested in buying. If the bank analyses your financial details and cannot grant you a mortgage, you always have the possibility to go to a different bank.


Extra costs of the Spanish mortgage

Updated information due to the sentence of the Supreme Court in October 2018 as well as the change in the Spanish law based on which the banks pay most of the initial costs of the mortgage. 

  • Legal expenses:

These are usually between 3% – 4% of the amount of the mortgage, but are since October 2018 paid for by the banks (and they can be claimed back for mortgages signed since October 2014). They refer to taxes, the notary´s invoice (the Mortgage Deeds are different from the Title Deeds and so they are charged separately), the invoice from the Land Book Registry and processing fees. These expenses are the same regardless of whether the mortgage is obtained from a Spanish or a foreign bank.

  • Solicitor fees:

Even though you can negotiate your mortgage directly with the bank, it is advisable for your solicitor to help you with this process as you will obtain professional advice. Besides of this his work with the bank will be more efficient because he knows the different conditions of the banks, the can check the Spanish general Terms & Conditions and he can negotiate on your behalf.

  • Extra bank expenses:

Opening fee (usually 0,5% – 1% of the mortgage), obliged home insurance (contents insurance) and life insurance for each mortgage account holder.

On this point, I would like to make a special mention about the life insurance policy that most banks usually require to obtain. This insurance policy is obtained for the mortgaged amount and guarantees that the bank can collect the amount due to the bank from the insurance company in the event that the account holders die.

Life insurance is an interesting product for mortgage holders but it may involve a high premium, especially if the insured people are elderly or have any health problems. This is because, in these cases, the premium will be higher as the risk that the mortgage holders die increases. It´s important to know that after the first year you can switch from insurance company to one that offers you better conditions on your life insurance.

It is also common for some banks to require you to pay a single premium for this life insurance policy, i.e., when the mortgage is granted, the bank already charges you for the total insurance premium for the entire mortgage period.

It is important for you to have a summary chart of ALL mortgage costs, so you can know the net amount of the mortgage (after deducting expenses) you will have available to pay for the property.


Legally binding mortgage offer

Once the bank confirms that your mortgage is approved, the legal document that guarantees this is the binding offer (´oferta vinculante´). This bank document functions as a contract and binds the bank to giving you the mortgage under the terms established in the document. The binding offer is usually valid for one month but it may not be valid for less than ten days.


Recommendations when buying a property with a mortgage 

Since the final approval of the mortgage by the bank will take 2 or 3 weeks. Therefore it´s wise to start the mortgage procedure as soon as possible, even if you haven´t selected a definitive property yet.

Have you already decided on the property you want to buy, but you do not yet know if you are going to obtain a mortgage? In this case you could try to negotiate with the seller that the reservation document and/or private purchase contract are ´subject to mortgage´. This clause avoids that you would lose your reservation fees and/or down payment if no bank in the end doesn´t grants you a mortgage loan. However, most (Spanish) sellers do not like to sign contracts that are subject to the mortgage so the best thing is to have everything prepared with the bank so that it takes as little as possible to receive a reply.

Also please keep in mind that not all banks are willing to grant mortgages for house in the countryside, or only for a limited percentage.


Saving money by subrogation of a mortgage

If you are a home owner with a Spanish mortgage than -after one year- you have the right to subrogate your mortgage to another band with a lower interest rate of better conditions. In this case the new bank will pay the rest of the loan plus the transfer commission (if this exists) to your current bank and you will pay your mortgage from that moment to the new bank according to the new conditions.

The subrogation cost is very low compared to the cost of signing a new mortgage. Therefore, if the interest rate that the bank offers you is lower, it is very likely for subrogation to be beneficial to you.

 

Read the extended information about this subject in our pdf-file: Mortgages in Spain to buy property for buying a house in Spain. For general information about buying a house in Andalusia you can also watch this video:

 

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

DAFO-AFO-Andalusian-property-purchase

DAFO UPDATE: OBLIGATIONS, INSIDE REFORMS, MORTGAGES & RTA/VTAR RENTAL LICENSES

Written by Gustavo Calero Monereo on . Posted in AFO, Andalucia, Andalusian, assimilated out of ordination, banks, building permit, conveyancing, english speaking solicitor, illegal building, legal advice, mortgages, Sin categoría.

DAFO
DAFO UPDATE: Obligation, interior renovation, mortgage & RTA/VTAR rental license.

New information on the DAFO certificate: in June 2017, we posted an extensive article on the legal situation and the legalisation of homes in non-urban land in Andalusia –DAFO / AFO–, outlining our opinion about positive and negative aspects of this legal precept. Almost a year and a half after this article, we would like to use this post to provide new information to owners and buyers of homes on non-urban land.

This information, which we believe may be useful, does not represent a fundamental change from what has already been stated, as there have been no legislative changes to the DAFO during this year and a half. This information, however, is based on our experience with different Councils in the province of Malaga and the approach they have been using for DAFO, as well as the questions we have seen among our clients.

Are Councils required to issue a DAFO/AFO?

Nowadays, we have found that a growing number of Councils, whenever there is any notification relating to a rural home, automatically open a file and start proceedings to start the DAFO process. This could be for example for the notification of:

  • Sale of a home
  • RTA (VTAR / Vivienda Rural) rental registration
  • Opening License Casa Rural / B&B
  • Registration of a property in the Land Registry
  • Applying for an urban certificate (for example for a purchase)
  • Change of account holder of the water supply

In other words, a growing number of Councils have been taking advantage of any information or request related to a property located on non-urban land to demand owners to start the DAFO process and legalise the rural homes built in the municipality. That said, if you wish to rent your property seasonally and you intend to register your home in the RTA -Andalusian Tourism Registry-, or you would like to register a pool or storage in the Property Registry, we recommend that you first analyse whether your home could obtain a DAFO.

As we have explained on many occasions, the DAFO is a procedure created to regularise homes on non-urban land that have been built illegally –most of them–, over which legal liability can no longer be claimed due to the passage of time. When the Council issues the first notification, it does not really require the owner directly to start the DAFO process. This first notification is about “telling” the owner to submit evidence whether the home complies with the legal requirements to be eligible for DAFO. This means that, if it does not comply with these, it is very likely that this is because there is some illegal situation in the building. This issue may still be subject to penalties from the Council and, in this case, the Council must open a sanctioning procedure against this unlawful situation, with the legal consequences you can imagine.

It is for these reasons that it is very important that, before you do anything or apply for anything at the Council that may entail the opening of a file against the property, you confirm that the home is eligible for DAFO and whether there is any building or work that may give rise to penalty proceedings. In this case, it is best to do nothing until enough time has passed. This in normal countryside is 6 years. Likewise, if you are thinking of buying a rural property, you must know that, when the Public Deed of Sale is executed and submitted to the Property Registry, the Council will receive a notification of this transfer and may later require you to legalise the home through a DAFO process.

Can I carry out internal refurbishments and renewal works through DAFO?

In accordance with Decree 2/2012, which governs DAFO, in this type of buildings “… only repair and preservation works required by the strict maintenance of the safety, habitability and sanitation of the building may be authorised”. Having said this, it is obvious that the works that may be carried out in properties of this type are limited and must be very clearly justified, always thinking about preservation and maintenance and never on improvements or additions, as renewal works as such are not possible. Since all rules are subject to interpretation, it is possible for some Councils to authorise certain types of refurbishment works that others do not. For this reason it is best to inquire at the Council to see if you could get planning permission before the work begins.

However, having said this, the desired internal refurbishments must always be justified from a point of view of habitability and necessity in terms of health and safety in the building, such as:

  • the opening of windows,
  • replacement of the roof,
  • replacement of floors,
  • substitution of sanitation equipment,
  • extension of the surface of a room that may be considered too small (without increasing building surface), etc.

The important thing is to evidence the need to carry out such works. Most likely, for the council to issue planning permission, it will be necessary to have completed or applied for the DAFO. Along with the technical project from an architect for the DAFO, the need to carry out such works should be justified due to the safety, habitability or sanitation of the home, applying for the corresponding licence. It will be very difficult to obtain permission without having completed the DAFO process.

If the home you intend to purchase already has a DAFO certificate, it is possible to apply for planning permission for the refurbishment works mentioned above but it is necessary to take into account the date the DAFO was obtained. It would not be very logical to apply for permission to refurbish a home for which the DAFO was approved only a few months prior, as the DAFO is supposed to certify that the home was in perfect conditions of habitability, without problems in terms of its safety or sanitation. Needless to say, if there has actually been some sort of unforeseen breakdown or accident in the property, permission may be requested for such repairs.

Can properties with a DAFO/AFO be mortgaged?

This question arises because a Spanish Royal Decree from 2009, regulating the mortgage market, contains an article that specifies that properties not meeting the legal requirements may not be mortgaged. Despite the existence of this rule, we must state that rural properties or homes on non-urban land have been, are and will continue to be able to obtain mortgages. There may be some banking institutions that do not provide mortgages for rural properties but there are many that do, which is logical as, in most cases, these properties are consolidated and are not subject to penalties, for which reason there is legal certainty over these.

We have submitted a query/test to one of the largest appraisers on the national market for mortgage valuations. In our query, we sent the land registry information – nota simple – of a rustic property with a DAFO certificate registered in the Property Registry and the response from the appraiser was unequivocal: homes with a DAFO are being appraised on the mortgage market. It should be taken into account that the appraisal value of a property for mortgages issues on non-urban land –a rural property– may be 20% to 40% lower than the purchase price, as the mortgage is given over the valuation price of the property. Nevertheless, a mortgage can be secured for these.

Can I have a RTA / VTAR rental licence for my rural property?

It is possible to rent and register a home on non-urban land in the Andalusian Tourism Registry -RTA- for short-term rentals (less than 2 months). This home would usually be registered as a tourist home for rural accommodation -VTAR-. As clarification, it should be said that it is possible to register rural accommodation or B&B as a country lodge or “casa rural” but this is designed for owners who are engaging in economic activities and operating such rental as a business, with at least one of them being required to register before the Treasury, pay VAT and register for Social Security.
The registration of a rural property in the RTA is subject to two approaches, depending on whether we talk to the Regional Government of Andalusia or the Council.

a. Regional Government of Andalusia

A few days ago, we had a talk with an inspector of the Regional Government in Malaga, who is in charge of inspecting homes of this type. Among other things, he told us that the Licence for First Occupation –Licencia de Primera Ocupación or LPO– is necessary to register homes on non-urban land in the RTA. As some people know, very few rural homes have an LPO. However, it is possible to obtain “legalisation” through the DAFO. The Inspectorate of Malaga have told us that a DAFO certificate would not be deemed to replace the Licence for Initial Occupation. In my legal opinion, I think that the Inspectorate are wrong and I clearly deem it arguable that, in the absence of a Licence for First Occupation, if a property has a DAFO certificate, this document should be accepted. Among other things, the DAFO certificate is the council recognition of the habitability of the property on non-urban land. In fact, Councils interpret this as a licence for the occupation of the property.

b. Councils

The Regional Government of Andalusia will notify the Town Hall when a home is registered in the RTA and this will lead some Councils to automatically call upon the owner to legalise the home through DAFO. It is also possible that a Council form will need to be completed before the home can be rented. Ultimately, at the municipal level, it is necessary to notify that you intend to rent your home and, if you lack an LPO, you will probably have to obtain a DAFO so that you can get this document, which recognises the habitability and occupation of the dwelling.

What should I do if I want to buy a rural home?

You can select the one you like best, without fears or concerns. Take the time you need and, once you have made a choice, you can start the buying process and negotiation. At the start of the process, do not hesitate to hire a lawyer specialising on this matter, who is familiar with this aspect of the law. As we have stated on many occasions, the cost of a lawyer is very small in comparison to all the money you will spend to buy a property in Spain. Saving money by failing to hire a lawyer during the process to buy your home in Spain may be one of the biggest mistakes you ever make. I know you may think what I want to do is to sell you my services –and this is true, this is why I work. But if you think about it carefully, you will understand the importance of having sound legal advice while buying a property in a country different from yours.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

lawyer english speaking in andalusia

FREE CHECK SPANISH MORTGAGE WITH FLOOR CLAUSES

Written by Gustavo Calero Monereo on . Posted in Andalusian, banks, english speaking solicitor, euribor, floor clause, judgment, mortgages.

floor clause mortgage spain

CLOSER TO A DEFINITIVE SOLUTION FOR THOSE AFFECTED

The first thing I would like to do is inform you that C&D Solicitors has signed a collaboration agreement with the Sevillian law firm Gallego & Rivas, which specialises in financial and banking law.

On the basis of this agreement, Gallego & Rivas have offered to study the documentation of homeowners who may be affected by a “floor clause” (cláusula suelo) in their mortgages, free of charge. At the end of this article, we will explain how those affected can get access to this service.

First of all: What is a “floor clause”? A mortgage is said to have a “floor clause” when, in a variable-interest mortgages, there is a clause in the Deed of the Mortgage Loan establishing that the interest for this mortgage cannot be lower than a certain threshold.

In other words, in this case, the mortgage cannot benefit from a low interest rate and from the successive drops that may occur, as the minimum interest rate is “shielded” and any interest rate set below the one established in the “floor clause” cannot be applied. For several years, the Euribor rate has been very low and these clauses have represented considerable losses for many customers.

For the last few years, there have been many legal proceedings in Spain brought by people affected by “floor clauses” in their mortgages. In fact, almost five years ago, we published our first article about this matter, echoing the first judgments. We should keep in mind that mortgages with “floor clauses” were common until 2009 or 2010.

Most judgments have sided with the complainants. Likewise, the Supreme Court pronounced itself in May 2010, declaring these clauses null.

So far, the legal arguments are clear so people with a “floor clause” in their mortgages have a very good chance of obtaining a favourable ruling. Such ruling would order the bank to eliminate the “floor clause” of the mortgage, as well as to return the money that customers have overpaid in their mortgages, in addition to the legal costs of the proceedings.

In its judgment of May 2013, the Supreme Court, in its legal reasoning, only ordered the banks to return the money unduly charged to customers from 9 May 2013 and not since the clause started to be applied to the customer. I.e. what was unduly charged before that date was not eligible for a refund.

The Supreme Court appealed to the economic turmoil that it could represent for banks to return the total amounts unduly charged to customers before 9 May 2013 as, considering that there are thousands of mortgages affected by a “floor clause”, banks would be forced to refund billions of euros to their customers.

Due to the controversial nature of this legal reasoning, a Commercial Court in Granada raised a prejudicial question to the Court of Justice of the European Union (CJEU) so that it would pronounce itself on whether banks should refund the amounts overcharged to their customers from moment that the “floor clause” in their mortgages was applied instead of from 9 May 2013.

On 26 April, the CJEU held the public hearing on these proceedings and, on 12 July, the advocate general of the CJEU will present his findings. At the end of the year, we will know whether Spanish banks will have to return everything unduly charged or just the amount overcharged after 9 May 2013.

It seems that there are good chances that the CJEU considers that everything unduly charged to every customer with a “floor clause” must be refunded. The decision is transcendental since –according to some sources– we are talking about 7 thousands millions of euros.

These 7 thousands millions of euros would be added, to the 5 billion euros that banks are estimated to be required to refund to customers, for everything unduly charged from 2013 to the present day.

Regardless of the date set by the CJEU, “floor clauses” are abusive and those affected have the right to file a complaint to get their money back. This is why we have signed an agreement with the law firm Gallego & Rivas, which has offered to study the documentation of homeowners who may be affected by a “floor clause” (cláusula suelo) in their mortgages and provide them with a short report on their situation.

The study of this documentation would be free of charge and legal advice would also be provided to recover the money lost and the cost of the proceedings. Customers can then decide whether they want to initiate legal proceedings.

Later, according to the number of persons interested in taking legal action against their banking institution, we could set up a day at our office in Torrox-Costa (Malaga) so that those affected by a floor clause in their Mortgage Deeds can get first-hand contact with Gallego & Rivas.

Ultimately, the affected person will get a specialist lawyer to study his case at no cost and advise him of the potential actions he may take to recover the money, as well as the cost of the proceedings.

If you are interested in getting this consultation free of charge, the way to proceed is to contact us at info@cdsolicitors.com, giving us your contact details and sending us a copy of your Mortgage Deed as well as the latest invoice for your mortgage loans. We will be happy to help you and clarify your legal status.

 

Author: Gustavo Calero Monereo, C&D Solicitors (Lawyers)

Torrox-Costa (Malaga/Costa del Sol/Nerja/Andalucia)

 

MORTGAGES: THE WELL-KNOWN ECJ RULING ON THURSDAY 14TH OF MARCH

MORTGAGES: THE WELL-KNOWN ECJ RULING ON THURSDAY 14TH OF MARCH

Written by Gustavo Calero Monereo on . Posted in euribor, lawyer, legal advice, mortgages, property law. No Comments on MORTGAGES: THE WELL-KNOWN ECJ RULING ON THURSDAY 14TH OF MARCH

HIPOTECA 2
European vs Spanish legal protection for consumers with mortgages

About a month ago, the European Court of Justice (ECJ) ruling caused a great stir among Spanish media. This court judgment has been originated from a preliminary ruling handed down by the Mercantil Court nº 3 of Barcelona, as a result of the mortgage foreclosure procedure between an individual and La Caixa Bank. This preliminary ruling intends to clarify if Spanish legislation complies with the consumer protection requirements regulated by the European Directive 93/13/ECC. This Directive was approved to ensure consumers’ protection against their disadvantageous position with respect to a professional when contracting certain services.

In short, here below are the facts intended to be disclosed before the ECJ:

First: In regard of Spanish civil procedure in the matter of mortgage foreclosures, it was intended to be disclosed if Spanish regulations fail to comply with the aforementioned European Directive protecting consumers, because in Spain the “judgment debtor” cannot claim the existence of unfair terms set forth in this contract. In Spain, if judgment debtors want to claim the existence of unfair terms in this type of contracts, they should initiate different court proceedings which may not paralyse the mortgage foreclosure proceedings; for example, a situation may arise where a property is auctioned due to the unpaid mortgage and the judgment debtor may also obtain a favourable court decision declaring that the contract of that mortgage is null and void once that the property has been auctioned. This may arise because the mortgage foreclosure cannot be paralysed despite the contract may be considered to be null and void.

Second: regarding the substance of the matter, the concept of “unfair term” of the Directive is intended to be clarified in order to assess if the terms of the mortgage contract—subject matter of the main action and undersigned between an individual and a bank, are of unfair nature; these terms are the following: early termination of long-term contracts, fixing of default interests and the liquidity agreement. These are “cut and paste” terms (similar terms) appearing in any mortgage contract which anybody may have executed with a bank.

Regarding the first issue, the ECJ is clear and unambiguous declaring that the Spanish procedural regime reduces the effectiveness of the protection pursued by the Directive, because:

a) Possible unfair terms of the main contract cannot be challenged in the same mortgage foreclosure proceedings which may finish with the property put up for auction.

b)  Mortgage foreclosure proceedings cannot be paralysed by the courts, although they know that the judgment debtor has filed court actions challenging possible unfair terms.

It is worth mentioning that by virtue of a repeated European case-law, the national court is obliged to consider of its own motion the unfairness of all contractual terms under this Directive.

Regarding the second issue, the ECJ answer is not very revealing, or at least automatically, in order to know whether a term is unfair or not, as the ECJ considers that the national court is the only competent body to interpret and apply the national Law. However, the court ruling states that to decide if a term causes an imbalance to the detriment of the consumer in relation to bank—national regulations must be taken into account if that agreement is not signed between the parties, the court shall assess if this term leaves the consumer in a less favourable situation than this provided by the national Law in force in case this term exists. For example, if the term fixing the default interest in the mortgage contract (normally around 20%) is an exception and there is no other similar legal interest in national Law (i.e. default interest applicable to commercial transactions is at 7.75%), then this term may be considered to be unfair; an open-and-shut case, judge for yourself.

Finally and regarding ongoing and future mortgage foreclosures in Spain, it is worth mentioning that two rulings have been already issued in the last three weeks declaring mortgage contracts to be null and void, because default interests were unfair.

 

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

Government of Andalusia increases many taxes

Government of Andalusia increases many taxes

Written by Francisco Delgado Montilla on . Posted in legal advice, mortgages, New building declaration, New sales, PREVENTION, property law, Stamp Duty, taxes. No Comments on Government of Andalusia increases many taxes

Increase AJD stamp duty tax Andalucia
Increase AJD stamp duty tax Andalucia

I would like to update you about some new measures carried out by the Junta de Andalucía, containing many reforms in the different existing taxes (not exactly to re-boost the current market situation…).

Concerning those interesting, we will focus on the Stamp Duty (A.J.D.), a tax applied to those public acts formalized on public documents to be registered in the different Public Registry offices with an economic amount (e.g. new property sales, new building declarations, or a mortgage deeds, among any others).

So, last week, the 19th of June, the Junta of Andalucía approved the new Decree-Law 1/2012, of 19th of June, which contains a series of tax, administrative and labor measures, published in the B.O.J.A. (Official Journal of the Government of Andalusia) last 22th of June 2012. You can find it by clicking: http://www.juntadeandalucia.es/eboja/2012/122/BOJA12-122-00014-11216-01_00009593.pdf

Within these measures, regarding the tax ones, we can find an increase of the general rate on the Stamp Duty, going from 1.2% to 1.5% of the declared value.

 

 

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

 

CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

Written by Francisco Delgado Montilla on . Posted in derecho hipotecario, euribor, Headline, hipoteca, Inmobiliario, intereses, mortgages, Property law, property law. No Comments on CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

More lifetime mortgages (reverse mortgage) Spain
More lifetime mortgages (reverse mortgage) Spain

Lifetime Mortgage (reverse mortgage)

According to the report published by “Optima Mayores” Advisers, the demand of lifetime mortgages has increased to 17% (19,900 applications) until April in comparison to last year same four-month period.

This increase in the lifetime mortgage demand matches the senior citizens’ growing needs to obtain an income and the better knowledge of this product in Spain, where it was first launched in 2004. Spanish Senior citizens’ pensions are at 40% below the European average, what indicates their necessity to face their retirement financing with a peace of mind. Regarding British senior citizens, the Euro and Pound Sterling exchange rate fluctuation has also reduce their earnings.

What is a lifetime mortgage?

A lifetime mortgage is a financial product that consists of a loan for seniors aged 65 or older or dependents, secured against the home where they live. They retain ownership of their home until they die, when their inheritors shall repay the loan or sale the property.

The maximum loan to be granted is based on a percentage of the property appraisal value. Then, the homeowner may receive a regular fixed amount or a lump sum payment.

Who qualifies for a lifetime mortgage?

The following requirements shall be fulfilled to qualify for a lifetime mortgage:

–        The applicant or the selected beneficiaries shall be aged 65 or older; or otherwise, they shall be individuals with high to severe dependency levels.

–        The borrower shall receive the money from the loan in regular fixed amounts or a lump sum payment (incomes).

–        Only the creditor (banks or savings banks) is entitled to demand the repayment of the debt and the mortgage foreclosure when the borrower dies, or if provided in the agreement conditions—when the last of the borrower’s beneficiaries die. The mortgaged property shall be valued and insured according to the Spanish legislation in force.

These are the official requirements to be protected by the Spanish legislation regulating this type of loans and to be entitled to the tax advantages established by this legislation.

Clients and banks may freely agree about lifetime mortgage transactions which include a varied set of terms and conditions; consequently, a professional advisor’s counselling in this proceeding is a determining factor for the good end of the agreement to enjoy the best advantages and conditions available.

Spanish legislation regulating lifetime mortgages

In Spain, this type of mortgages are regulated by Law 41 of 7th of December 2007—Mortgage Market Reform legislation.  This Law provides that the lending institution is obliged to offer an independent advice to individuals, so that the consumers’ rights are preserved and the economic and financial conditions suit their needs. This counselling and negotiation tasks are normally provided by specialised lawyers and companies offering this service to private customers.

If you are thinking about a mortgage which best suits your economic needs, take your time and ask for advice to specialised lawyers. They will ensure the best deal for you.

Author: Francisco Delgado Montilla, C&D Solicitors (lawyers)

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

Written by Gustavo Calero Monereo on . Posted in conveyancing, euribor, Headline, interest, judgment, mortgages, Property law. No Comments on CURB ON “FLOOR CLAUSES” IN MORTGAGE LOANS

Nullity floor clauses mortgages Spain
Nullity floor clauses mortgages Spain

On the 30 September 2010, Court no. 2 of Seville gave judgment declaring the “floor clause” introduced by the respondent entities Spanish bank BBVA, Saving Banks Cajamar and Caja de Ahorros de Galicia in the mortgage loan deeds formalised with them abusive and therefore null and void, for considering that the minimum threshold interest rates set by them are abusive and detrimental for the consumer.

Although the judgment has been appealed by the three financial entities mentioned, the Court has ordered the provisional application of the resolution. Therefore, as from 27 January 2011, they will not be able to include the said clause in their mortgage loans, and from 11 April, they will not be allowed to charge the clients with the difference between the minimum interest rate as per Euribor plus the interest rate agreed with the client, and the minimum threshold interest rate or  “floor rate” set by the said bank entities in their mortgage loans.

The so called “floor clause” means that in times of low mortgage interest rates, such as the ones we have lived through and are living through at present, the client is committed to pay a set minimum interest rate, which means that even if interests go down, their mortgages cannot benefit from lower interest rates

According to ADICAE (Association of Banks, Saving Banks and Insurance Companies of Spain), in Spain, there are currently 3.8 million clients who have this “floor clause” included in their mortgage loans and have not been able to take advantage of lower mortgage interest rates over the last years. The said association considers that in 2010, Banks and Saving Banks obtained a revenue of 7,000 million euros thanks to these clauses. These results show the importance and relevance of this judgment.

Therefore, as from 11 April, the entities BBVA, Saving Banks Cajamar and Caja de Ahorros de Galicia are obliged to recalculate repayments in all loan agreements taking into account a variable interest rate according to the Euribor benchmark rate, plus the interest rate negotiated with the client, and not according to the minimum threshold interest rate or “floor rate” established in their mortgage loans. This means that, since the interest rates applicable will be lower, the monthly repayments of those clients who have a mortgage loan with any of these entities will decrease.

Commercial Court no. 11 of Madrid has currently admitted the biggest joint action filed in Spain against 45 bank entities for the application of these “floor clauses”. It is likely, that before the end of the year, we know if such a number of saving banks and banks have to follow the path of the other three mentioned, which will be the most logical and coherent outcome.

However, whichever the result, it is likely that this issue of “floor clauses” reaches the High Court, who will then be in charge of taking the definitive decision about these provisions being abusive or not.

In the meanwhile, I would advise you to check your mortgage loan deeds , so that you may see if you have benefited from this judgement and if from 11 March, your bank is applying the resolution.

We will keep you informed on new updates.

 

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

 

 

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