Compensation for Mortgage payments – Floor clauses

Filed under : Civil Law, Conveyancing & Property Law, Litigation

SPANISH MORTGAGE CLAIMS : Following a judgment of the European Court of Justice on 21st December 2016 you may be able to claim compensation from your bank  if you have a mortgage containing a “floor clause” which has been held to be  unlawful by the European Court of Justice.

Many Spanish mortgages were linked to a variable interest rate such as the European Borrowing Rate (Euribor). A lot of these mortgages had a floor clause which meant even if (as it did) the official interest rate dropped to a very low level, the customers mortgage was stuck at the floor rate. This meant people were paying much more than they should have been.

Consumers who have one of these mortgages,  can now claim for the wrongly charged interest going back to 2008 or earlier in many cases.

If you think you have been affected, or even if you are just not sure, De Cotta Law will carry out a Free Review of your case.

Simply complete the online form and one of our expert staff will be in touch.

Floor clause claim form

Alternatively, you can email us at [email protected]

The losses could be €200 or more per month on a mortgage of €150,000 which means that claims could be as high as €20,000.

On Friday 20th January, the Spanish government published draft legislation by way of a Royal Decree (Real Decreto) known as “Royal Decree 1/2017 of 20 January on urgent measures for protection of Consumers in floor clause cases”. It sets up a scheme for claiming compensation without the need for litigation.

This legislation was widely anticipated but was ultimately something of a disappointment from a consumer’s point of view with most of the advantages being in the banks’ favour.

The important points are as follows ;

  • It only applies to consumers – It does not apply to properties owned by companies
  • For the consumer, it is voluntary. The consumer may decide not to apply via the new scheme and can choose to take the case directly to court
  • It is in force from January 21st 2017
  • Banks had a month to establish a complaint system that should be publicised in their branches and on their website. The deadline for banks to establish such a claim system was February 21st 2017. Most banks have now done this.
  • Once the consumer files his claim, the bank has 3 months to settle and pay the due compensation

Therefore if you have a claim for compensation there are the following possibilities:

i) A claim is submitted via the scheme and the bank and customer agree on the calculation of compensation and the bank pays this within 3 months of the claim being submitted.

ii) The bank does not respond or make an offer within the required 3 months. The customer can commence a court action and if he wins, he will be awarded legal costs.

iii) An offer is made within the three months but the customer is not satisfied with the calculation. The customer can commence a court action and if he proves that the bank’s offer was incorrect  he will be awarded the correct level of compensation plus legal costs. If the bank made the correct offer, the customer may be forced to pay the bank’s legal costs in defending the action.

iv) The bank and customer agree the level of compensation, but the bank does not pay within the three months : The customer can commence a court action and if he wins , he will be awarded legal costs.

v) The bank rejects the claim: the consumer can commence a court action and if he wins, he will be awarded legal costs.

vi) Instead of a cash offer, the bank can offer alternative solutions (reduction of capital of the mortgage, or other financial products), but the customer can refuse this and insist on cash compensation.

Many Spanish tax residents claim tax relief on their mortgage payments. If they receive a refund on the interest paid they have to return the tax relief that they received on this original higher level of interest.

On the face of it, it appears that the scheme would be beneficial to the consumer. However, on a deeper analysis it appears that some consumers may still have to take the banks to court to get compensation. At the moment there is no penalty at all on the banks if they don’t comply and legal claims through the courts can take considerable time.

Time will tell if the banks comply with what is essentially a voluntary code, and what action the Spanish government and/or the Bank of Spain will take if they don’t.

You will need a copy of your mortgage deed (escritura de prestamo/hipoteca) , if you don’t have this you can obtain a copy from your bank or from the notary where the deed was signed.

Please contact us for a free review of your mortgage deed if you suspect that you may have a mortgage containing this clause and you are interested in claiming compensation. Contact us now at [email protected]