Homeowners to Receive Compensation for Unfair Mortgages Sold in Spain

January 21st, 2017 | By injuryclaims

A new law passed this week in Madrid will make it easier for homeowners to receive compensation for unfair mortgages sold in Spain during the housing boom.

During the property boom, many homeowners were sold mortgages that offered attractive introductory interest rates followed by a variable rate linked to EURIBOR. Many of these mortgages had a “clausula suelo” buried within the small print that stated the variable rate had a floor – a minimum interest rate that could be charged by the lenders.

Unfortunately for many homeowners, this meant that their mortgage repayments increased substantially at the end of the introductory period, despite the EURIBOR rate falling to a historic low. Homeowners trying to claim compensation for unfair mortgages sold in Spain were told it was their responsibility to read and understand the agreement before signing it.

Following an increase in mortgage defaults and home evictions, the Spanish Supreme Court found that the clauses lacked transparency and that banks had an obligation to explain their consequences to mortgagees. A class action followed and, in April 2016, a commercial court judge ruled that homeowners were entitled to a refund of overcharged interest from the date of the Supreme Court´s judgement in May 2013.

The European Commission queried the backdating of compensation for unfair mortgages sold in Spain to May 2013. Commissioners asked, if the clauses were unfair and to be voided from mortgage agreements, why was the compensation not backdated to the start of the agreement. The courts responded by saying that the banking industry would have a €4 billion liability if it were to compensate homeowners over the full life of the agreements, and that amount would cripple the industry.

Nonetheless, towards the end of December, the European Court of Justice ruled that homeowners were entitled to a full refund of the amounts they had been overcharged. Fearing a large volume of claims for compensation for unfair mortgages sold in Spain, the Spanish government acted quickly and recently announced a claims process that it hopes will avoid the need for mass litigation.

On Friday, Spain´s Economy Minister – Luis de Guindos – announced banks should identify and write to each homeowner with a “clausula suelo” in their mortgage agreement, and offer them compensation for unfair mortgages sold in Spain. The Minister gave the banks three months to comply with the decree, stating that if no agreement can be reached on the amount of compensation due within this time scale, homeowners would then be able to take the bank to court.

Some banks have already indicated they will not fully comply with the decree. BBVA and Banco Sabadell have stated that, in cases where the clause in the mortgage agreement was transparent, or in cases where the mortgage agreement was handled by a legal or financial professional, they will not consider themselves liable for the failure to advise the mortgagee of the clause.

There is also the risk that – as with the PPI scandal in the UK – the banks liable to pay compensation for unfair mortgages sold in Spain will attempt to make offers that do not reflect the true amount overcharged. Consequently, Spanish property owners in the UK are advised to seek legal advice from a professional familiar with the situation in Spain at the earliest opportunity.

Categories: Financial Claims

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