List of all abusive clauses that a mortgage may contain
- Clause of limitation to the minimum interest rate (floor clause): It is usually located in the stipulation 3 bis with the denomination. “Límite a la variacióndeltipo de interés variable” It usually coexists with another upward limit (or ceiling). The abusiveness of the clause due to imbalance arises when there is a disproportion between the floor and the ceiling so that it is the Bank that is covered against the mortgagor. 87% of mortgage users were not informed by their bank of the inclusion of said clause
- Multi-currency clause: The Supreme Court, in its Judgment of November 15, 2017, declared the partial nullity of the multi-currency clause for generating a serious imbalance against the requirements of good faith
- IRPH clause: Although the Spanish Supreme Court declared the validity of this clause in its Judgment of December 14, 2017, several questions have been referred to the CJEU by first instance courts of Barcelona, Reus and Almeria as well as by the Provincial Court of Salamanca, against the criterion of the Supreme Court. These courts affirm this clause lacks transparency. We are waiting for the decisions of the European Court.
- Upward rounding clause: The interest rate is rounded by a quarter of a percentage point and always upwards and for the benefit of the bank. The Supreme Court has issued repeated decisions in which it is made clear that these stipulations were not negotiated individually and are against the requirements of good faith, causing, to the detriment of the consumer, a significant imbalance of the rights and obligations of the contract parties
- Review of interest at the request of the borrower: Bank unilaterally establishes the need for the user’s request to activate the revision of interest on a loan which was granted at a variable rate. The Supreme Court declared these clauses null and void on December 23, 2015
- French depreciation system: Using this system, although the capital is being amortized, the interest does not decrease because it does not take into account the capital already amortized.
- Clause on the computation of interest to 360 days: Bank of Spain considers this as malpractice if the formula does not clearly show that a 360 base is being used and the loan contract just simply mentions a generic statement such as “days object of the liquidation, expressed in commercial days”or equivalent expression.
- Delay interest clause. In cases of loans without a real guarantee, the Supreme Court considers that the default interest must not be more than two points higher than the remuneration interest agreed in the contract. In cases of loans secured by mortgages, Article 114 of the Mortgage Law sets a limit of three times the legal interest.
- Anatocism pact. Suppressed, for mortgages, in the reform to the Mortgage Law of 2013. Delay interests can never become part of the capital.
- Imposition abusive of personal guarantors: The validity of clauses inserted by the Bank by which they force the inclusion of a guarantor is questioned for two reasons.
- The capital is already insured by the debtor’s personal guarantee and by a mortgage
- Lack of transparency when this clause (1) imposes the waiver of division and excuse benefits without explanation of these benefits or (2) the absence of indication of the joint and several nature of the guarantee.
It produces an over-guarantee which is disproportionate to the risk assumed by the bank
- Waiver of the benefit of excussion, division and order by guarantors and guarantors
The guarantor is hence placed in the same place as the debtor. And for the sole purpose of shielding the interests of the bank. Consequences of this resignation are not explained by the bank when adding these clauses to contracts.
- Mortgage Expenses Clause: Clause by which Notary and Registry fees, property valuations, management fees, taxes… Were imposed on the borrower in full. Most of them have to be paid by the bank.
- Clause on lawyer’s fees in case of litigation: Declared null by Supreme Court decision dated December, 23rd 2015 because they suppose a waiver or limitation of rights granted by Law to the consumer or user.
- Opening Commission: There are several Courts in Spain that consider the opening commission abusive as they do not respond to the provision of an effective service to the user.
- Study commission: By imposing these costs to the consumer, the Bank is transferring to the consumer the costs that the study of facts before mortgage granting implies.
- Subrogation Commission: For the same reasons as the Opening Commission: they do not respond to the provision of an effective service to the user.
- Clause of referral to the rates of the entity for the setting of commissions: The Supreme Court Sentence dated December 16th, 2009 confirmed the abusive nature of stipulations that referred to the “book of fees and commissions”. The information must be provided directly to the client at the time of signing the loan agreement
- Postal expenses. Costs for postal notification to the user are imposed on the consumer. These clauses do not provide any kind of equitable distribution between the parties.
- Commission for claiming debtor positions: This commission must be agreed and signed in the loan contract and banks must act in accordance with the following principles:
- It must be linked to the effective existence of a claim. A simple letter is not enough
- It cannot be reiterated when claiming for the same balance
- The amount will be a fixed one, regardless of the amount of the claimed balance
- Early expiry clause: This clause violates the principle of proportionality. The Bank can request the full amount of the loan just after one to three payments default. Both the Supreme Court and the General Directorate of Registries and Notaries have affirmed so. According to the postulates of the Court of Justice of the European Union in the Sentence of March 14, 2013, the full loan can only be claimed if the consumer has incurred in an essential breach and in a high amount with respect to the amount of the loan.
Nor can there be early expiration in cases of:
- Seizure of assets of the borrower or decrease in his solvency
- Declaration of insolvency of the debtor
- Non-payment of community expenses or any taxes levied on the property
- Decrease in the value of the property
- Impossibility of registration of the mortgage guarantee
- Death of the debtor or guarantor
- Other generic breaches of the obligations contained in the writing
The Court of Justice of the European Union is about to issue a ruling on a question referred by our Supreme Court in which this asks about foreclosures that include this clause. The response of the European Court of Justice may affect the Law on Real Estate Credits, now in the Congress of Deputies. In its articles, the advanced maturity is established with 9 instalments or 2% of the total loan.
- Clause limiting ownership rights: Both the Supreme and the General Directorate of Registries and Notaries state that the clauses by which the Bank prohibits selling, leasing or encumbering the property without the prior consent of the creditor are null and void.
- Clause prohibiting linking of the real estate to professional activity: They suppose an unjustified limitation of the principles of freedom to contract and of freedom of ownership.
- Waiver of the right to be notified in case of sale of credit: Although Article 242 of the Mortgage Regulations allows the debtor to waive knowledge of the mortgage loan sale contract to a third party, this provision does not prevail over the Consumer Law. The Supreme Court says so in the Judgment of December 16, 2009. The cession can notdeprive of the rights that he himself has, that is, to free himself by paying the person who was the holder of the credit if he has not been notified.
- Consent clause for the consideration of the executive power of all authorized copies of mortgage deeds requested by the Bank. It mocks the need for acceptance that the law requires the debtor to provide.
- Clause fixing the appraisal value for auction. The appraised value for auction can not be less than 75% of the appraised value of the asset if the credit is not going to be securitized. If the loan contract is going to guarantee the issuance of titles, it will be of 100%.
In addition, the adjudication of the property by the entity, in the absence of auctioneer, must be at least 70% of the auction value. Any clause contrary to these criteria is null.
- Clause for which the entity is entitled to collect compensation for loss of property There is no need for this clause because Article 110.2 of the Mortgage Act awards the bank the amount of compensation granted or owed to the owner provided the loss it would have taken place after the constitution of the mortgage.
The clause that allows the bank to hire fire and damage insurance at the borrower’s expense is also null.
- Election of Notary: Consumer/ debtor has the right to choose the Notary provided it keeps a reasonable connection with any of the personal or real elements of the business. The Notary must also assist the contractor who has a weaker legal position.
- Clause of express submission and waiver of the jurisdiction itself. Prohibited by the Civil Procedure Law itself.