Judge in Spain Rules Against Mortgage-Floor Clauses

Spanish lenders must reimburse clients whose mortgages had unclear interest-rate clauses


MADRID—A Madrid judge has ruled that major Spanish lenders must reimburse clients who had signed confusing mortgage contracts that unfairly prevented them from benefiting from a steady drop in interest rates.

Most of the banks named in the lawsuit already have removed the mortgage floors, which set a limit on how low monthly home-loan payments can fall regardless of what happens to interest rates.

The pre-emptive removal—in anticipation of an unfavourable court ruling—had triggered a decline in profits in recent quarters for Spanish banks.

Banco Popular Español SA, POP 5.05 % for instance, reported a net loss in the fourth quarter of 2015 after it set aside a provision of €350 million (about $398 million) to cover potential legal claims. Lenders BankiaSABKIA 2.48 % and Caixa bank SACAIXY -1.75 % reported declines in a key profit metric when they stopped applying the interest-rate floors last year and had also provisioned for possible paybacks to clients.

Caixa bank had provisioned €515 million in 2015 in anticipation of potential legal claims, a spokesman said Thursday. The provisions made by banks extend back to May 2013, the date when a top Spanish court first ruled that some mortgage floors needed to be removed. That decision only applied to several banks. Thursday’s ruling by the Madrid judge applies to most other Spanish banks. The reimbursements are retroactive to May 2013.

All investors’ eyes are now on Banco de Sabadell SA, SAB 5.04 % the only major Spanish bank that has mortgage floors and hasn’t removed them. Sabadell executives have said the clauses in their contracts that spell out the impact of interest-rate floors are clear-cut.

Sabadell “is going to study this ruling and will make a decision once it has been analysed,” a bank spokeswoman said. The bank doesn’t rule out appealing the ruling to a higher court, she added. Sabadell shares closed down around 4% on Thursday after the ruling was announced. Any potential payback to clients, the spokeswoman added, is already provisioned for and therefore should have a minimal financial impact on the bank.

The bulk of Spanish mortgages are variable-rate loans tied to the euro interbank offered rate, known as Euribor, which has plunged below zero as central banks enact their easy-money policies. That drop in Euribor should have benefited mortgage borrowers’ monthly payments. But if they had a mortgage floor, their payments couldn’t fall below a certain amount—a bust for their monthly bills but a boon for Spanish banks.

The Madrid judge “thinks that the mortgage-floor clauses that have now been declared null and void lack transparency and are therefore abusive,” according to a statement from the court on Thursday. The mortgage floors went against clients’ expectations, the statement added: When “a client thought that he was taking out a variable-rate loan, he unexpectedly found a clause that prevented him from benefiting from a decline in the reference interest rate.”

Careful with Scammers Posing as Spanish Lawyers

Within the last year we’ve seen an alarming increase in the number of queries regarding the legitimacy of certain Spanish law firms and lawyers. These companies are in fact non-existent and act only as shelter companies devised to fleece foreigners offering them dubious legal services often related to some murky financial interest, which is in the end nothing but some sort of advance fee fraud. Foreigners should be well advised that these scammers pass themselves off as legitimate Spanish law firms and lawyers. They prey exclusively on foreigners and are in fact not even Spanish themselves. Their command of English is very good.

Spanish lawyers belong to one of the numerous Bar Associations that sprawl throughout Spain. There are a total of 83. Every lawyer member of a BA will have a registered number. It is very easy to check in less than a minute if a Spanish lawyer is legitimate, providing he is in fact registered of course.

These fraudsters will always contact you to offer legal assistance in some service of which you by chance are the sole lucky beneficiary. The potential reward to reap is huge (hundreds of thousands if not millions) in exchange of a reasonable legal fee which in comparison doesn’t seem like much. The preferred contact method is email (which they may follow up by ordinary post), and they will offer you either of the following legal “services”:

  1. Letting you know that after a long and winding investigation it has surfaced that you are the sole live beneficiary of a considerable Spanish inheritance from some distant relative you had in Spain (unbeknown to you) that has sadly passed away.
  2. Offering you to join group actions to recover deposits from bogus resale time share companies in ongoing court proceedings (Reclaim Certificates).
  3. Notifying you that you have won the Spanish Lottery (despite never having played it) or that you have been selected in a random draw and are now the lucky beneficiary of a special promotion from the generous Spanish Lotto Administration.
  4. Contacting you regarding using your bank account, in exchange of a sizeable commission, for some million dollar bank transfer with origin in some dodgy place in Africa. This is known as the Nigerian Letters.
  5. Offer to assist you in the verification and payment of unclaimed funds located in Spain of which you happen to be the only beneficiary

Taxes in Spain

We would like to explain you more about the taxes in Spain.

- When you buy a property in Spain, and after the payment of all the taxes involved in the proper purchase, having a property create several taxes to be paid annually, as in every other country of the world. In this country, there are four different taxes: Two to be paid to the Town Hall, and other two to the Inland Revenue Offices:


- I.B.I. (Impuestos sobre Bienes Inmuebles): This is the annual contribution for having a house. It appears once or twice a year.

- RUBBISH COLLECTION: It appears twice a year, 1 Semester to be paid around April, and the 2nd Semester that uses to appears around August-September.



- INCOME TAX: This tax is an average of the possible income takes for having a property in Spain, (it does not matter if you rent it or not, or if you have an income or not, and it was created to avoid tax evasion in general from foreigners who have houses in Spain and rent them). It is calculated on the above Cadastral value, and has to be paid at the same time as the previous one.


The income to be declared in this case is the total amount collected from the tenant, without deducting any expenses.

This income is chargeable when it is claimable from the tenant or when it is collected (if earlier). Each rent due is taxed separately and, consequently, a return must be filed for each rent due.

Nevertheless, collective returns may be filed which may include various chargeable income of one or more taxpayers falling within a calendar quarter. If the collective return includes the income of several taxpayers, the person filing it must be a representative or one of the persons which the law regulating this tax defines as being jointly and severally liable (payer or administrator).

- Filing period: for ordinary returns (form 210), the deadline is one month after the date on which the rent is due. Collective returns (form 215) relating to a quarter must be filed within the first 20 calendar days of the month of April, July, October or January following the first, second, third or fourth calendar quarter, respectively.

- Tax rate: 24%.

Theses taxes could be deducted in your own country's tax declaration.

Once all this explained, we inform you as well that either you can declare by yourself, or to use the services of a Fiscal Representative for your comfort, for which reason we offered our service to you.

If you decide not to pay these taxes, it should be under your own decision, but let advise you of what you should have in mind: that, when you decide to sale your property in the future, as foreigners, you will have a legal retention of the 3% over the sale price, which will be given back to you once the Tax Offices checked that all the previous taxes are paid. If they find some unpaid taxes, they will discounted them from the retention previously made for said purposes, with their corresponding penalties for not pay in due time. Therefore, as you can see, taxes are going to be paid in one way or another.

We hope that this matter is now clearer to you, in order to permit you to understand better our tax system, and your obligations with this country for having a property here.

Please, do not hesitate to contact us for any other query.



Lawyers (Abogados) in Spain

The Spanish word for Lawyer is 'Abogado' and is the equivalent to a Solicitor or a Barrister in England or Attorney in the United States.

The Law society in Spain is called the Ilustre Colegio de Abogados. It operates at a provincial level and sets minimum levels of charges. Do not hesitate to ask your lawyer for an estimate of the charges, preferably in writing. If you have a problem you can always take it up with the provincial 'colegio to which the lawyer is a member.

There are many decent law firms to be found in Spain with many able to speak a very good level of English.

Legal Aid

If you are a resident of more modest means, you may be entitled to free legal aid. Anybody with an income of less than 2.5 times the legal minimum wage are entitled to free legal aid from the state. The legal minimum in 2003 was 6.000 Euro a year. The Colegio de Abogados who administer the scheme have a legal aid office in each Law court building or 'Palacio de Justicia'. The procedure is complicated and will involve much paperwork to prove your wage and assets.

The Spanish Legal system

There could be any number of reasons for the need of qualified legal advice especially when you are in a foreign country. There are correct procedures to follow and things can take time and money. When choosing your lawyer or legal team, check their area of speciality. It may be wills, tax, property or other.

A lawyer who specialises in a particular field will be able to get to the heart of a matter much quicker than a general law practice. They may be a bit more expensive, but it will be worth it because they should be able to get things moving much quicker.

It is always recommended to engage the services of a lawyer for the purchase of property and/or land. Make sure its your own. Its not uncommon for clients to be offered biased legal advice from the start. In Marbella some extremely high profile lawyers (abogados) have been implicated and convicted of colluding in some of the Marbella property scandals and corruption.

Other situations you will probably need a lawyer for in Spain

  • Making a will - very important for homeowners or property who should consider the very serious implications of Inheritance tax
  • Marriage and Divorce
  • Disputes over property - Real Estate Law
  • Custody cases for children

Many of the larger legal firms, in places such as Madrid or Barcelona, will have departments or offices that specialise in different areas of the law. In areas further South such as Andalucia you will find that the legal company's services are more general with a range of services. It is wise to check that your chosen lawyer is familiar with your requirements, otherwise you could be paying them a lot of money just for doing the research.

Useful Spanish legal links:

Consejo General de la Abogacía Española


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