NEW SPANISH MORTGAGE LAW

As of next week there is a new Spanish mortgage law being implemented. This covers many many facets such as early  redemption penalties, bank opening fees, AJD and Notary fees etc (while the law on AJD was amended last year the position on Notary and Registry fees wasnt crystallized). 

ONE VERY MAJOR POINT TO TAKE NOTE OF is that with the new law a new completion process is being introduced which as I read it will involve 2 Notary visits for the buyer/borrower that will be 10 days apart. The first is for the Notary to explain the Mortgage Deed and terms and conditions and to be satisfied that the borrower is in full and complete understanding of the contract that they are signing. The borrower then has a ten day "cooling off" period to allow for any change of mind or to raise questions about the contract they are entering into by signing the mortgage deed. Assuming that the borrower is happy with T's and C's the second appointment is for signing the deed and the purchase completion as per normal now.

At this stage it is not clear whether a lawyer with a Power of Attorney, can represent the client and sign on their behalf for either or both Notary visits. One assumes that certainly the first visit is likely to need to be in person as the Notary is required to confirm that the borrower understands the terms and conditions.

I have spoken to two Notaries and three lawyers about this and so far there has been no official directive and the College of Lawyers in Spain has also provided no direction to its members. In true Spanish style (you have to love them) they have implemented a law without extrapolating the consequences of their actions, or giving training or direction on how it will work in practice. The banks are none the wiser as to the mechanics either and they will also have to be compliant by ensuring that mortgage paperwork follows a specific standard (not necessarily a bad thing to have some kind of uniformity). 

I am sure that once in practice and after some "pain threshold" stress it will become a matter of routine and it is a start at regulating the industry that is long overdue but this warning is just to try and raise awareness that if things are running down to the wire on a property purchase completion this is another challenge to navigate so allow plenty of time when agreeing on a purchase completion date and at this stage be aware that you may need to make 2 visits to the Notary within 2 weeks of each other to complete on a purchase.     

Good posting Smiley.

Would you be recommending that a purchaser should ensure that the details are checked by a trusted independent lawyer (if not done so already) and make an appointment to do so prior to the first notary visit, because if there are only 10 days gap then it might not be possible to get this organised in time?

One concerning aspect is if the terms and conditions undermine property rights in any way going forward? Might there be some obscure disclaimer elements to this? Needs clarifying? Perhaps Maria could advise?

Maybe also worth forewarning to read the Govt website on purchase in Spain (noting the updates post 2013)

https://www.gov.uk/guidance/how-to-buy-property-in-spain

and any other respected sites that provide good independent advice?

Thank you Ads. I would always recommend using a lawyer for any apsect of a property purchase. For our clients we have always provided them with the equivalent of a Key Facts Letter similar to the type you would receive in the UK. It is nowhere near as extensive as a Spanish mortgage deed but that is about 25 to 35 pages long with all of the clauses and calculations relating to penalty interest charges in the event of default etc. And being a legal contract there is a lot of jargon that seems to be repeated.

What I am trying to highlight is that any vendor or agent is likely to try and express a completion date within the Compraventa. Many people will sign this with blinkers on and not allow enough time (in the event they need a mortgage). Usually we can get a client from first conversation to completion within 5 weeks (assuming it is straightforward and subject to time of year) as long as the client is prompt. If they are really efficient and the lawyer is efficient we have got them done and dusted in 4. However this enters a completely new domain and everyone will be working on a basis of theory adding in the hurdle of an extra ten days and nobody having specific direction from the law makers as to what is and what isnt acceptable. The law is implemented on Monday!!!! There are lawyers who aren't even aware of it - much less estate agents so it is likely to be hard to manage buyers and sellers expectations alike. 

I can think of four clients in the last 12 months who technically speaking would have been in breach of contract if the law had been in situ at that time - in reality I imagine that an extension to completion date would have been forthcoming without too much issue as the transaction would be so close to completion the vendor would have been crazy to pull out when so close to signing but in all those cases the vendors were not Spanish and I wonder how flexible the Spanish might be in a situation like this. Hopefully as pragmatic as more Northern Europeans :) 

although this doesn't affect me at all, I'd like to say well done that man for posting this info.

Thank you John - whether it helps or not I guess depends on who reads it :) but I suspect that there will be many people in the coming months who are going to find themselves in stressful situations that they weren't prepared for. We are already warning clients and introducers that we work with to make an allowance for it until the Chinese whisper network gets around to all those involved in real estate 

Very good point, Smiley.

I would say that during those ten days, client can consult with lawyer. It is also reasonable to  regulate this in the purchase contract.You may like reviewing this post:

https://www.costaluzlawyers.es/2019/02/25/the-new-mortgage-act-in-spain/

Happy weekend

M

This message was last edited by mariadecastro on 14/06/2019.

Smiley,

Heres an article which I thought you may be interested in, as it could affect mortgage holders.

https://www.thejournal.ie/readme/opinion-sound-the-alarm-a-proposed-eu-directive-on-bad-loans-will-give-the-vulture-funds-a-free-rein-4451105-Jan2019/

Are you aware of this and do you know if it has been accepted by the EU Parliament?

Are you concerned by this directive and do you need to forewarn clients of the implications to such a directive?

I don't know if it has been accepted by the EU parliament but as the commentator writes it would doubtless be foolhardy to start packaging loans into CDS's all over again (to be honest I am not sure that securitisation has ever stopped but perhaps a little more below radar). 

I don't think it will ever be possible to completely eliminate the clause from a mortgage deed that a loan can be transferred to an alteranate lender - it has always been there even in the UK in the small print. In the event of a lender being taken over by another lender provision has to be made in the deed that you agree to it. Thus that clause opens a potential can of worms for everyone that the mortgage can be sold on to A N Other. 

Am I about to start warning clients that in a hypothetical situation that they default on their mortgage it might be sold on - in short no. If any client thinks there might be a chance of default then they should not be taking on the responsibility. In Spain mortgages are structured slightly differently to the UK (and I daresay other Euro centres) in that it is deemed that a borrower is borrowing the Bank of Spains money - while it might be branded Sabadell, Santander etc the BOS is still lender of last resort. In the 80s arbitrage was made illegal in Spain following the collapse of Banco Central who had taken huge positions in various forward FX contracts but failed to hedge accordingly. Because the authorities determined that the operation was too complex for their compliance departments within Spanish banks all interbank currency and deposit operatons were somewhat restricted as to what they could do. I am pretty certain that as a consequence in the 08 banking crisis Spanish lenders weren't affected by the collapse of the CDS market because they weren't involved. In other words no packaging of prime, normal and sub prime mortgages. Another fact to bear in mind is that there is no sub prime mortgage market in Spain or self certification of income. So on that score it is much more conservative and cautious. Over the last ten years they have become even more so and risk departments are a lot more scrutinized than they were up until 08. 

I am aware the commentator in the article mentions Spanish debt in relation to the vulture funds but as I see it the only Spanish debt they probably hold is already toxic and has already gone through the protracted repossession process that exists in Spain. I am pretty certain that Sabadell etc won't be selling off a performing mortgage book because I don't think that they can. The law here is so complex (and perhaps antiquated) that I don't think it makes allowance for modern methods of lending. 

Not sure that answers your question but its all I got 

Thanks so much Smiley.....as always the devil is in the detail,  

One question remains...could a clause in the contract override any clause in the mortgage deed, to prevent a mortgage being sold on? But wouldn’t this be perceived as being in contravention of this proposed EU directive?

Also how can the Bank of Spain be considered to have any incentive to ensure Banks adhere to compliance if they themselves are the lender of last resort? Wouldn’t they be shooting themselves in the foot so to speak? Is there a direct conflict of interest here? This explains perhaps why there has been so many failings with regard to BG abuse and mortgage floor abuse etc, as there is no one body regulating the Banks in Spain....or is there?

Sorry, more questions for you Smiley ( and Maria) ?

Rest assured Ads that with the hoops people have to jump through these days regarding proof of income, origination of funds for money laundering and the controls on the valuation companies the banks make bloody certain they comply. They suffer severe penalties if they dont and the BOS has imposed some quite stringent penalties on a lending bank if a client goes three months into arrears. 

The new mortgage law is dealing with things such as AJD mortgage tax and land registry fees for the mortgage illegal floors (which I dont think any lender applies these days in any event). In fact the floor itself while immoral, wasn't illegal - it was the fact that it wasn't made clear to the borrower that a floor was applied. Floors used to be used in the UK many years ago as well. Mortgage regulation is a slow process and this is a good step. It is creating a certain amount of chaos in the beginning but as it gradually becomes the norm then it is better for the consumer and more transparent and no I don't see a conflict of interest. BOS is lender of last resort but only in the event of a bank going bust - they don't profit from a lender's interest in the mortgage. Their interest is protected by ensuring that they don't have to bail out a rogue bank lending indiscriminately as in the years from 98 - 2010.  

Whether they can insert a clause preventing a mortgage from being sold on - you would probably need to talk to the EU about that - I wish you luck....they can add it to the list of things to do after they have sorted the Brexit fiasco :)  

Maria’s blog back in May 2018 suggests that a formal complaint has been brought to the attention of the EU Commission with regard to selling on mortgages:

https://www.eyeonspain.com/blogs/costaluz/18269/legal-tip-1456---spanish-law-finance-regulators-and-hedge-funds-business-examined-by-european-commission.aspx

so I’m confused how this ties in with the EU directive concerns expressed in that Irish article.

https://www.thejournal.ie/readme/opinion-sound-the-alarm-a-proposed-eu-directive-on-bad-loans-will-give-the-vulture-funds-a-free-rein-4451105-Jan2019/

I wonder if Maria can clarify?

Ads the complaint was about transparency.   That consumers were notified of a debt sale/transfer.  The issue was that Banks were including in the mortgage agreement notification of opt out which was seen as unfair as consumers are reckless when it comes to reading and understanding what they are agreeing to. They don't and then complain later.  It has to do with uneven participation in contracts.  In truth the parties are not seen as equal and it is perceived that Banks hold the upper hand.  Of course no one isvforced to sign but they feel unable to negotiate the terms of a mortgage agreement.  

It was never meant to thwart secondary trading, just make consumers aware that it can and does occur.  

It’s not just about transparency Perrypower, it’s also apparently about unjust enrichment.

“ The Credit Directive affirms that assignment of credits can never weaken the consumer's position. By not knowing who its creditor is, the consumer loses the opportunity to obtain a significant discount on his debt, which is enjoyed by a third party, a vulture fund, in an unjust enrichment.”

“ The Bank of Spain which allowed in its Circular 4/2004 for the transferred assets not to leave the balance sheets of the banks, encouraging a practice that only benefits the vulture funds and that seriously harms consumers”.

https://www.eyeonspain.com/blogs/costaluz/18269/legal-tip-1456---spanish-law-finance-regulators-and-hedge-funds-business-examined-by-european-commission.aspx