The European Union Court of Justice’s General Attorney on the early-cancellation clauses in Spanish mortgages recommends that they should be declared null and void in full. Therefore, they cannot be applied at all and the mortgage contract must remain in force.
A report made by the European Union Court of Justice’s General Attorney on the early-cancellation clauses in Spanish mortgages recommends that they should be declared null and void in full. Therefore, they cannot be applied at all and the mortgage contract must remain in force. You can read the article in Spanish here. Usually, the Court follows the recommendation of the General Attorney. This is very good news for consumers. Really, very good news.
In short, it is likely that most mortgage contracts in Spain include a clause regarding the early cancellation of the mortgage loan in cases where there has been a breach of contract by the mortgage holder. The standard stipulation said that the non-payment of just one whole monthly mortgage repayment, or even just some of the capital or interest, would mean that the bank could cancel the contract before the agreed final term and ask for all the capital, the overdue interest, penalty interest, legal fees, etc. What is more, in the case the debtor was not able to fulfil this payment, the bank could start a court procedure to repossess the property. And this was easily done as it is a very straightforward procedure. It is just an enforcement because the mortgage deed is like a judge ruling and therefore automatically enforceable. The banks often took advantage of this special and fast procedure to repossess the property and reclaim the money from the unpaid loan. It was common for banks to use the early-cancellation clause to engage these procedures. This is, when a debtor defaults on one mortgage repayment, or two, three, or even 10, the bank formally notifies the debtor informing him that his mortgage contract is being cancelled using this clause as the reason. The bank then asks for the full amount of money owed along with interest and legal fees. So, just imagine that that early-cancellation clause was no longer valid, and the banks could not use it. This would mean that every single repossession procedure that had applied this clause (almost all of them) would be based on one that is null and void and cannot be used at all since it is abusive. And, there is no doubt that it is an abusive clause as it is in no way proportional. For instance, let’s say the bank lent a customer €100,000.00. This clause says that the bank could engage this clause if the mortgage holder defaults on just one monthly repayment or even just part of it. This is what the clause actually says, and this is basically why it is abusive. In another post (internal link), we explained what the general rules are for the cancellation of contracts of this kind, and one of the requirements was that one of the parties should breach the contract in a way that frustrates the expectations of the other party; that is, that the breach should be relevant. And defaulting on the payment of one, two, three or even several months is not really relevant when taking into account how many months it takes to buy a house.
The majority of courts put all the procedures that had engaged this clause on hold (almost all of them) whilst waiting for the final decision of the EUCJ. So, if the outcome is as recommended by the General Attorney, every repossession case will be ruled null and void and the banks will have to start all over again, but only when the amount not paid by the debtor is relevant enough. And this relevance is something to be assessed by the court case by case.
Actually, the new regulations regarding repossession procedures that are currently being discussed in Spanish Parliament are likely to establish a set percentage of the mortgage loan which has to be unpaid before the banks will be able to repossess the property, so this could be guide for everybody from now on. However, the new regulations are not still in place.
This is a very good question. My opinion is that those who have already been evicted due to a repossession procedure that was based on the early-cancellation clause will be able to ask the State for compensation as the European Law regarding this clause had been wrongly applied. And the question now is, how can you compensate a family that has been evicted from their home because of this? How much would a just compensation be? How much is the suffering of that family or person worth? What about in those cases where the debtors committed suicide because of all the stress? How much is this worth?
I have no idea. The only rule will be to consider all the circumstances in each specific situation. What I can say is that if the EUCJ finally declares the early-cancellation clause null and void in full, the banking Spanish system will be flooded with a new wave of lawsuits, which looks like it could be really tough going.
Thank you for your time and attention and I hope this information is of use. You are very welcome to share if you liked it. Please, note that this is general information on legal subject and cannot be used as specific advice on legal situations. It is always recommended to seek legal advice for any specific situation you might be involved.