More dificult for banks to foreclose
In line with the resolutions of the European Court of Justice (ECJ) on the Spanish Supreme Court (SC), in a recent ruling of the 11th of September, has ruled on the consequences of the invalidity of mortgage repayment default clauses that allowed termination of the loan agreement and in doing so, has sealed the fate of thousands of ongoing foreclosure proceedings dealt with by Courts of First Instance.
As of the 11th of September, the following rules apply in loan foreclosures in Spain:
- Banks will be able to foreclose if:
- The borrower has defaulted on its repayment obligations on principal, or interest.
- The sums unpaid amount to a minimum of:
- 3% of the principal borrowed, if default takes place during the first half of the mortgage loan term. This condition will also be considered met when the borrower is at least 12 months in arrears (or equivalent).
- 7% of the principal borrowed, if the breach takes place during the second half of the mortgage loan term. This condition will also be considered met when the borrower is at least 15 months in arrears (or equivalent)
- Loan foreclosure cases that are ongoing will be dealt with as follows:
- If the loan was terminated before the 15th of May 2013 by applying the default clause recognized as null and void, the case will be dismissed.
- If the loan was terminated after the 15thof May 2013 by applying the default clause recognized as null and void:
- The case will be dismissed if the default does not meet the criteria of gravity and proportionality, by application of art. 24 of Act 5/2019.
- The case will not be dismissed -and may continue to be processed- if the default meets the criteria above described.
- Where the bank is legally unable to continue with ongoing cases, they will still be entitled to bring further loan foreclosure applications but exclusively based on contractual default based on the criteria of Act 5/2019, and not on the existing loan default clause.
Posted on September 24, 2019
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