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Good news for those hit buying Off Plan Property Buyers as Spanish Banks hold their breath

Spanish Banks are putting aside more than €150 Million Euros as the Courts turn on them for their part in the Off Plan Property disasters of the last decade.

The Spanish property boom of the early 2000s gave way to an equally big implosion in 2008. Some 7 years later as the dust continues to settle and the media has moved on, thousands of ex Pats are still affected. A law passed last week in Andalucía, allowing houses built “off plan” by developers during the boom to become legal means that for many the nightmare is coming to an end. For many others however the night mare continues.

Buying “Off Plan Property” is effectively buying a plot of land on which a house will be built. Prior to the 2008 crisis, property developers offered great prices on these plots as a way of financing the project. In an ideal market there would be no loser, the buyer makes a large gain by buying early on and selling once complete, and the property developer is able to build with the finance from selling a percentage of properties before they are built. Regrettably for those who bought in Spain during the property boom, which was not the ideal market conditions, there were three main problems – local Politics, global Economics and the Law.

The political problem was the local councils who were keen to see their communities growing, more houses meant more people, and more people means more revenue for local business and for the council themselves. Builders and developers who had not applied for planning permission were allowed to continue building. Planning rules were changed to change agricultural land into urban land. Then elections came, along with new Councils and the rules changed once more. Buyers found that the planning permission promised for their new home was rejected, or worse that the urban plan had been altered and their homes now stood on agricultural land once more. Habitation Licenses, legalizing the home were not granted, and therefore the owners were not entitled to water or electricity, further down the line there would be fights with the demolition crews.

In retrospect the Economics at the time were a big issue too. Consider that in Spain in 1986 debt represented around a third of disposable income and by 2005 some thirty years later, it had risen to 105%. Also of note is that in the fourteen years from 1990 to 2004, the average length of mortgages doubled from 12 to 25 years. Spain then, by 2005 had become a country living in debt. Factor in that housing bubble in Spain expanded at such a pace from 2000 that by 2010 there were nearly 25 million new homes on the books. Property prices rose by nearly 150% in that period.  Its no surprise then that Developers and Builders were so highly geared when they began projects and in many cases, rather predictably, ran out of funds.

In English

FAQ about Floor Clauses

What are interest floor clauses?

In a tracker mortgage the interest rates on the mortgage loan track the interest rate of the Euribor or European Interbank Offered Rate. The Euribor is a reference rate which takes the average interest rates in the Eurozone and is published daily. The idea of tracking this rate in a mortgage is that if the rate rises you pay more but if it falls then you pay less. However many banks in Spain set in their agreements a minimum rate of 3-4% meaning that if the Euribor falls, the banks have a built in cushion for continuing to make a profit. This is called the “clausa suelo” in Spanish, we know it as the Interest Floor Clause or a Collar Clause.

How much extra is this Interest Floor Clause costing me?

The exact cost of this can only really be determined on a case by case basis. However, as an example, when the Euribor was at the lowest point in its history, 0.18% in April 2015, an interest floor clause of 3% or 4% meant that you would have been paying, on a mortgage with a capital of 150.000€ for twenty years, approximately 150€ more each month adding up to a total of 9.000€ over the fixed period.

How do I know if I have an interest floor clause in my mortgage?

The best advice, if you are not sure about what is included or not in your mortgage agreement, is to seek advice from a professional. Our Law Firm can assist you with a free consultation, if there is an Interest Floor Clause, we will find it and we can assist on a no win, no fee basis.

I have heard that the Supreme Court has declared interest floor clauses as being illegal , is this true?

Not exactly. The Supreme Court has declared that the floor clauses are initially legal, however they must comply with a series of requirements, such as the consumer being given a clear explanation, much like PPI in the United Kingdom. If the clause does not comply it can be considered as abusive. This is why it is best to ask for professional assistance. Martinez Echevarria Abogados has a specialised team from our world famous Banking Law department ready to examine your mortgage. Please do not hesitate to contact us to obtain free and independent legal advice.

If my claim is successful, I would only manage to obtain the removal of the interest floor clause and no compensation?

This is incorrect, there has been some confusion regarding the decision of the Supreme Court. However, European Union regulations demand the full reimbursement of all the amounts overcharged without a time limit. Martinez Echevarria Abogados have been pioneers in promoting the first pre-legal matter before the Court in Luxembourg and it is our belief that the result of this action will be an acknowledgment that those affected should be paid back every penny.

Do I need to make a claim against my bank to remove the floor clause?

Some banks, such as Banco Popular, Banco Pastor or Unicaja defend the legality of the interest floor clauses and do not leave any other option to the clients but to carry out proceedings in Court. Other Banks offer the removal of the floor clauses in return for taking out other products such as Insurances; again this is not acceptable as the cost to the client is re absorbed into the other products. The only way to ensure a fair deal and adequate compensation is to make a claim directly to the courts.

My bank has already removed the floor clause, however they have not returned the amount that they overcharged. Can I ask the Court to make an order?

As soon as it is proved that the floor clause is abusive, the Courts must approve your request for compensation.

I applied for a mortgage in the name of a trading company. Can I still go to Court?

The most recent jurisprudence from the Commercial and Provincial Courts all over Spain confirm that you can go to Court. However, these cases must be studied in detail before reaching a conclusion concerning the viability of the possible Claim.

But a Claim must be expensive and risky, isn’t it?

Not at all. It is essential to have a specialised lawyer to make a successful claim against a bank, but in most cases the claim is risk free. To assist with costs we operate on a no win no fee basis.

Martinez-Echevarría Abogados are an international law firm that provide first class legal services. Established in 1983 on the Costa del Sol, We have a dedicated team of expert lawyers with a huge amount of experience in dealing with consumer mortgages issues. This makes us one of the most prominent Spanish Law firms engaged in defending the interests of bank customers. What’s more we operate on a No Win No Fee basis. That means that you make no upfront payment. At the end of the process the Interest Floor Clause will be removed from your mortgage agreement and you will recover all the excess charges that you have paid. We then charge a percentage of the amount recovered which is usually around 20%.

In English

Frequently asked questions about “Interest Floor Clauses”

What are interest floor clauses?

In a tracker mortgage the interest rates on the mortgage loan track the interest rate of the Euribor or European Interbank Offered Rate. The Euribor is a reference rate which takes the average interest rates in the Eurozone and is published daily. The idea of tracking this rate in a mortgage is that if the rate rises you pay more but if it falls then you pay less. However many banks in Spain set in their agreements a minimum rate of 3-4% meaning that if the Euribor falls, the banks have a built in cushion for continuing to make a profit. This is called the “clausa suelo” in Spanish, we know it as the Interest Floor Clause or a Collar Clause.

How much extra is this Interest Floor Clause costing me?

The exact cost of this can only really be determined on a case by case basis. However, as an example, when the Euribor was at the lowest point in its history, 0.18% in April 2015, an interest floor clause of 3% or 4% meant that you would have been paying, on a mortgage with a capital of 150.000€ for twenty years, approximately 150€ more each month adding up to a total of 9.000€ over the fixed period.

How do I know if I have an interest floor clause in my mortgage?

The best advice, if you are not sure about what is included or not in your mortgage agreement, is to seek advice from a professional. Our Law Firm can assist you with a free consultation, if there is an Interest Floor Clause, we will find it and we can assist on a no win, no fee basis.

I have heard that the Supreme Court has declared interest floor clauses as being illegal , is this true?

Not exactly. The Supreme Court has declared that the floor clauses are initially legal, however they must comply with a series of requirements, such as the consumer being given a clear explanation, much like PPI in the United Kingdom. If the clause does not comply it can be considered as abusive. This is why it is best to ask for professional assistance. Martinez Echevarria Abogados has a specialised team from our world famous Banking Law department ready to examine your mortgage. Please do not hesitate to contact us to obtain free and independent legal advice.

If my claim is successful, I would only manage to obtain the removal of the interest floor clause and no compensation?

This is incorrect, there has been some confusion regarding the decision of the Supreme Court. However, European Union regulations demand the full reimbursement of all the amounts overcharged without a time limit. Martinez Echevarria Abogados have been pioneers in promoting the first pre-legal matter before the Court in Luxembourg and it is our belief that the result of this action will be an acknowledgment that those affected should be paid back every penny.

Do I need to make a claim against my bank to remove the floor clause?

Some banks, such as Banco Popular, Banco Pastor or Unicaja defend the legality of the interest floor clauses and do not leave any other option to the clients but to carry out proceedings in Court. Other Banks offer the removal of the floor clauses in return for taking out other products such as Insurances; again this is not acceptable as the cost to the client is re absorbed into the other products. The only way to ensure a fair deal and adequate compensation is to make a claim directly to the courts.

My bank has already removed the floor clause, however they have not returned the amount that they overcharged. Can I ask the Court to make an order?

As soon as it is proved that the floor clause is abusive, the Courts must approve your request for compensation.

I applied for a mortgage in the name of a trading company. Can I still go to Court?

The most recent jurisprudence from the Commercial and Provincial Courts all over Spain confirm that you can go to Court. However, these cases must be studied in detail before reaching a conclusion concerning the viability of the possible Claim.

But a Claim must be expensive and risky, isn’t it?

Not at all. It is essential to have a specialised lawyer to make a successful claim against a bank, but in most cases the claim is risk free. To assist with costs we operate on a no win no fee basis.

Martinez-Echevarría Lawyers are an international law firm that provide first class legal services. Established in 1983 on the Costa del Sol, We have a dedicated team of expert lawyers with a huge amount of experience in dealing with consumer mortgages issues. This makes us one of the most prominent Spanish Law firms engaged in defending the interests of bank customers. What’s more we operate on a No Win No Fee basis. That means that you make no upfront payment. At the end of the process the Interest Floor Clause will be removed from your mortgage agreement and you will recover all the excess charges that you have paid. We then charge a percentage of the amount recovered which is usually around 20%.

In English

Update on the European Rules of Succession

As many of you will know the new regulations on Wills and Succession came into force in the middle of August whilst most of us were on the beach, on holiday or hiding in the shade.

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