Banks who sold mortgages containing “clausula suelo” clauses have been given three months by the government to resolve Spanish mortgage floor claims.
Throughout the Spanish property boom of the 2000´s, up to 2.5 million mortgage agreements were signed containing a “clausula suelo” – a clause that stipulated a minimum interest rate that could be charged on the loan if the variable rate fell below a certain level.
This “mortgage floor” led to many property owners making far higher repayments than they would have done when EURIBOR interest rates were reduced after the property crash in 2008. The higher repayments also led to multiple mortgage defaults and evictions.
Many felt that the banks had acted unfairly, as the mortgage floor clause was often contained within the small print of lengthy and complicated mortgage agreements. Several mortgage floor claims were made by unhappy property owners, but few were successful until May 2013.
In May 2013, Spain´s Supreme Court ruled that mortgage floor clauses in BBVA´s mortgage agreements lacked transparency and were unfair. This led to a class action of more than 15,000 Spanish mortgage floor claims that resulted in April 2016 with Judge Carmen Gonzalez ruling that property owners were entitled to compensation for “quantities improperly charged”.
Judge Gonzalez stipulated in her ruling that only overcharged amounts from May 2013 could be recovered. However, European Commissioners investigated the judgement on the grounds that if – as the Supreme Court found – the clauses were unfair and should be voided, they should be voided and compensation paid from the beginning of the mortgage agreement.
Spanish lenders, including Barclays, Santander and La Caixa, argued that if they were to pay each of the potential claims from the beginning of the mortgage agreement, it would cost more than €4 billion – an amount that would cripple the fragile banking sector. Nonetheless, in December, the European Court of Justice ruled Spanish mortgage floor claims should be paid in full.
Conscious that there is a potential for 2.5 million Spanish mortgage floor claims, the government quickly agreed the terms of a decree that would create a process for property owners seeking compensation. On Friday, Spain´s Economy Minister – Luis de Guindos – told a press conference that banks had been given three months to contact each customer affected by the mortgage floor clause and make an offer of settlement.
If an offer is inappropriate to the amount overcharged, property owners have the right to contest the offer. If no agreement can be found within three months, property owners have the right to take their Spanish mortgage floor claims to court. The government has advised property owners to seek legal advice before accepting or declining settlement of the Spanish mortgage floor claims.
Some lenders have already said they will not fully comply with the decree. Banco Sabadell and BBVA have already stated that, in cases where the mortgage floor clause is clearly indicated in the agreement, or in cases where the mortgage agreement was signed by a legal or financial professional, they will not consider themselves liable for Spanish mortgage floor claims. There is also the likelihood that many lenders will make inappropriate offers of settlement to reduce their liabilities.