By Raymundo Larraín Nesbitt
Lawyer – Abogado
27th of December 2016
The ECJ ruled last 21st of December 2016 that 'floor clauses' (which I call collar clauses in my articles) are null and void. This ruling is final and cannot be appealed. It is estimated mortgage borrowers are owed €3,000 for every year as from 2009 onwards. On average borrowers, can expect an average payout to the tune of €15,000 after this landmark ECJ ruling. It is estimated Spanish banks will fork out between four to seven billion euros to honour the High Court’s decision.
This key decision taken by Europe’s High Court is a much-anticipated ruling that puts an end to a long winding saga that started over a decade ago. Wind back the clock ten years to the boom times, and when no one had even heard about floor clauses, I was ramming against them in my articles and blog posts as these collar clauses were clearly abusive and biased in favour of lenders. Today´s warnings make tomorrow's newspaper headlines.
As example of my articles at the time warning consumers on them:
• 10 Common Abusive Clauses in Spanish Mortgage Loans – June 2009
• Spain’s Senate Petitions Government to Suppress “Floor Clauses” – September 2009
• Spanish Mortgage Loans: Beware of Abusive Clauses – January 2012
• Mortgage Collar Clauses Revisited (‘Cláusulas Suelo’) – December 2013
Basically, these clauses only came into effect when the Euribor (which is the financial benchmark most Spanish lenders take to set variable mortgage interest rates) dropped sharply in 2009. It was only then that consumers began noticing that despite the huge drops in interest rates the savings did not pass on to them. Lenders were in fact (unjustly) pocketing the difference thanks to these collar clauses.
Spain´s Supreme Court in 2013, in a very controversial and much-criticised ruling, only partially ruled against them limiting their effects as from the 9th of May 2013 onwards – which was nonsensical and fell short for a number of reasons.
For starters, from a practical point of view, the overwhelming majority of these clauses had been signed in the boom times; almost none were signed as from 2013 onwards. So, this ruling made no sense at all on limiting their effects at a time when none were being signed as Spain was in the midst of a severe recession when almost no houses were being bought.
Strictly from a technical legal point of view, this was one of the few instances where a legal matter is black or white. Roman Empire iurisconsults had already coined a millennia ago the latin expression: “Quod nullum est nullum producit effectum”. Loosely translated as what is null and void produces no legal effects and therefore must be annulled ab initio (from the outset). In plain English after a clause is declared null and void by a judge the effects should be retroactive; the practical significance this has is the difference between having to pay (or not) billions of euros to consumers in settlements.
This legal tradition admitted no exceptions and had been followed uninterruptedly for centuries by our judges; that is, until Spain´s Supreme Court, the highest court in the land, decided unwisely otherwise in its 2013 time-gating the effects as from May 2013 onwards albeit not retroactively. This was clearly a legal aberration justified only "in the greater good of the (Spanish) economy" (read lenders).
The controversial ruling from Spain's Supreme Court was clearly biased towards lenders with only one much-lauded dissenting vote from a brave magistrate that spoke up against them. The magistrate that broke rank from his peers was the only one who in fact had NOT worked for lenders in the past nor had any professional ties to them; Mr. Francisco Javier Orduña Moreno. So, kudos to this bold magistrate for his forward-thinking and making a stand.
The ECJs ruling corrects this glaring mistake from Spain's Supreme Court and sets the record straight for consumers at large.
What happens now?
Fast-forward to today: Consumer Associations are vying with the newly-appointed Government to streamline the payout procedure and avoid thousands of consumers having to go to court over these huge payouts (which would clog Spanish courts furthermore).
In the meantime, consumers that are entitled to payouts require the assistance of a lawyer as lenders will be highly reluctant to pay out these large sums.
Spanish Tax Office
Additionally, it should be noted that the Spanish Tax Office will be owed tax on these payouts. They can only claim back the last 4 years.
Who can claim?
Not all mortgages signed over the last decade included collar clauses; a case-by-case approach must be taken.
If you signed a mortgage loan over the last decade in Spain, chances are high a collar clause was worded into your mortgage contract. In which case, you would be entitled to an average payout exceeding £10,000 following this new ECJ ruling which binds Spanish lenders.
Thousands of non-residents (the majority British) that bought second homes in Spain during the boom times are now entitled to these huge payouts.
Do I need to appoint a lawyer?
As written above, for the time being yes, you do need to appoint one if you want your money back. Only if the Government and Consumer Associations manage to reach a consensual decision over the matter would the use of lawyers be overridden. However, the negotiations could drag on for months if not longer.
Deadline to claim?
If your mortgage was fully paid up, you only have 4 years to claim as from the last instalment.
In other cases, it is not time-limited.
Fast track out-of-court settlements
In order to avoid protracted litigation (which ultimately, lenders are bound to lose following this new ruling), it is reasonable to expect that some lenders will offer clients out-of-court agreements. The downside is that these payments will be significantly less than what a consumer is really owed given the time elapsed and the delay interests accrued on top.
It will fall on each consumer to decide individually on whether they want a substantially smaller amount now (as in a year or less) or else a significantly higher amount in some years’ time (with additional compounded interests on top).
It should be noted that on signing such an agreement you waive your right to go to court and file a claim. I mention this because lenders, on seeing that chances were high they would lose before the (unbiased) ECJ, have been busy over the last months in 2016 offering their mortgage clients lacklustre settlements in lieu of litigation.
Whatever the case may be, Larraín Nesbitt Lawyers can assist you in your decision-making finding the best solution for your individual needs. Ask us, we will examine your case free of compromise.
“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain” – Mark Twain.
American writer, entrepreneur, publisher and lecturer. Among his novels are The Adventures of Tom Sawyer and its sequel, Adventures of Huckleberry Finn.
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