Antonio Flores’ Blog

The Spanish Supreme Court has ruled that floor clauses can be deemed void where the bank failed to advise customers with clarity and transparency, establishing conversely that would be licit where borrowers were fully and adequately informed.

The high court analysed the clauses used by the bank BBVA and found them to be in breach of consumer regulations due to the following reasons:

• There is insufficient clear information that such clauses are material to the object of the contract.
• They were inserted together with “ceiling clauses”, which caps the loan interest rate, as if offered in exchange for the bank’s concession.
• The bank failed to offer examples on specific instances of interest rate behaviour.
• There is a lack of clear and comprehensible information in respect of cost comparisons with other loans offered by the lender -where there are others- or a warning that the borrower is not being offered others.
• In the case of BBVA, the clause is embedded within significant data that  disguises it and has the effect of diluting the attention of the consumer.

The Supreme Court has also found these clauses to have a perverse effect: they created the false appearance that the lower the Euribor, the lower the mortgage repayment (it was thus just an amiable facade).

Customers in the above scenario are now in a position to succesfully challenge such clauses although, as was made clear by the Supreme Court, the ruling does not have a retrospective effect.

Do you have one of such clauses in your mortgage loan contract? Have you calculated how much you could save by having it removed?

Antonio Flores Litigation, Mortgages, Property Abusive Clauses, BBVA, Caixa Nova Galicia, Cajas Rurales Reunidas, Floor Clauses, La Caixa, Santander, Spanish mortgage borrowers, spanish mortgages

Try to guess what is it that the following have in common: an electrical company from Alicante, a cement subcontractor from Valencia, a real estate company from the Balearics, the Spanish Inland Revenue, the Spanish Social Security, 6 banks and 65 employees (2 of which guard an empty plot), on the one side, and 150 consumers that were hoping to acquire Spanish off-plan property on the other.

You guessed right: they are all registered with the courts on occasion of a voluntary company administration arrangement of a large Alicante-based property developer, San José Construcciones, hoping to perhaps get paid some money back over the course of a number of years.

The above scenario, however normal it may appear to be these days, hides a fundamental legal flaw that brings into question, once again, a legal system that has routinely failed to protect those who deserved the utmost protection: consumers.

Such flaw can be inferred from the controversial fact that the first group of creditors are hoping to get paid with the monies of the second group, the buyers, who should have had their deposits bank-guaranteed or insured pursuant to a Franco time law, the Ley 1968/57 Act, that was specifically enacted to avoid the situation they are now in.

In this case-study the irony (or irritation) is that BBVA, the second Spanish bank in size, is queuing up to try to grab a chunk of the money they are supposed to have been guaranteeing in the first place, since they provided a collective bank guarantee to underwrite deposits on a 120-unit development, deposits on which they profited handsomely for the developer’s mortgage and various commissions were being paid out of these. Crazily enough, this bank will only agree to “voluntarily” comply with its mandatory obligation after some arm-twisting, which involves lawyers and legal action.

Another surprising aspect of this all is the fact that criminal case-law states that no developer can use consumers’ down payments for anything else but building the contractually agreed property, and this excludes real estate commissions, admin staff salaries, pocket money…etc. As there is not one brick on the plot, helping consumers get their monies back should be a priority of any property developer, particularly where many lawyers have found that the criminal route can render results (many developers are serving prison terms for this), not the least where the developer has broken the law so blatantly.

Financially ailing developers are probably too traumatized by what has happened and can only hope the market will recover one day (and that lawyers will not press too hard). On the contrary banks shirking their legal, and ethical, responsibilities towards trusting property buyers (Spanish and foreign alike) has to now come to an end, particularly where abundant bank-guarantee case law is invariably favouring consumers and banks are seemingly getting unlimited funding from the Spanish State.

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Adaptation of the post originally written for the Olive Press – The Banks Are to Blame.

Antonio Flores Litigation, Property Bank Guarantees in Spain, BBVA, Ley 1968/57, litigation against spanish developers, San José Construcciones

It is only a few days ago when we read a story of an ailing 80-year-old diagnosed with Alzheimer and dementia, who had been sold €18,000 worth of… worthless financial products from CAM bank. The gentleman in particular had an officially recognized 80% disability, impaired vision and a history of strokes, and yet, he was persuaded by his branch manager into buying CAM shares for €9,000 and a further €9,000 on deposit, until year…3000!

This example of disgraceful behaviour, far from being an isolated case, adds on to a long list of what we could call “bankers´ most despicable actions” (we would completely miss the point if we thought that these are not man-made) and illustrates the utter disrespect and greed of certain individuals working for some banks.

So listed below are Top 7 Banks’ questionable at best, despicable at worst practices I have come across both in the exercise of the legal profession, and exemplifies the declining ethical standards within the industry.

1. Equity Release: a scam that was operated by a number of Scandinavian and British banks where pensioners were asked to gamble away their lifetime savings on two main pretexts: that by registering a mortgage on their property, they could eliminate Inheritance Taxes for their children, legally, and that by investing the loan obtained from the mortgage they would obtain an additional income to their limited pension. A few criminal ongoing court actions, and an avalanche of soon to come civil suits will determine how ethical it was for Rothschild Bank offer a 90-year old a 90% loan on her property…
2. Clip or Swap clauses on mortgages: financial products wrongly sold to mortgage-loan customers as insurance against increasing interest rates. The bona-fide insurance policy was in reality a complex derivative instrument. Most Spanish banks indulged in this awful practice and court cases are being resolved in favour of customers. Bankinter, Popular Bank and a few other culprits have lost 523 Court cases versus 90 ruled in their favour…
3. Bad-advice provided by Deutsche Bank to its customers when advising them that Lehman Brothers and some Icelandic banks, which ultimately went bust, were, nevertheless, the investment of choice. Court number 57 in Madrid is currently dealing with the matter.
4. Awful advice by Santander Bank when offering customers to invest with “world’s biggest conman” Bernie Madoff, despite knowing since 2006 the dangers of investing with him, according to the press.
5. Deceitful advice given to long-standing clients by La Caixa, CAM, BBVA and many other banks to sign up “preferential shares”, when they thought they were depositing their savings on a fixed-deposit. Whereas one would think that younger, dynamic and financial-savvy investors would take on these products, this meeting held by very upset customers seems to suggest otherwise.
6. Abusive use of the extra-judicial foreclosures by some banks. This repossession mechanism is generally (and inadvertently) agreed to by the borrower when signing the mortgage loan deed, is conducted by Notary Publics and can lead the bank keeping a property for €1. An association is fighting to expose this practice.
7. And lastly, a shocking photographic report of Jyske Bank’s not-so-exquisite treatment of an evicted property owner, his belongings and the property itself, following a bizarre dispute lasting 18 years. The Gibraltar-based bank managed to regain possession of an offshore-company-owned property although not ownership, that was retained by the ultimate owner (our client), as confirmed by a  number of quirky court rulings that nevertheless allowed Jyske to put their hands on this property with one sole purpose: destroy as much as they could!

Antonio Flores Mortgages, Scams Banco de Santander, bank repossessions, BBVA, CAM, Deutsche Bank, equity release, Jyske Bank, La Caixa, Rothschild, Swap Clause

Banks must have done something really dodgy in respect of these Russian-roulette swap contracts, because, besides the deluge of rulings tagging these instruments as the epitome of banking misrepresentation, one particular court in Madrid has now issued, at the request of the Banking Services’ Consumers Association, a search warrant in the central offices of the BBVA bank, the second biggest in Spain.

The execution of the measure was set for the 21st of December, since the bank was refusing to provide the court with a list of consumers that had signed up to the protection provided by these contracts against interest rate fluctuations, thinking this was the case. To avoid further embarrassment, BBVA decided to hand in the paperwork a few days before the deadline.

Statistically, I would say that 3 courts out of 4 are now rendering these contracts as null and void since they were sold as an insurance cover in the event of heavy interest rate fluctuations (upwards obviously) but craftily concealed the scenario where, if they went down, the bank would be cashing in. Courts understand that these contracts hid a complex financial-speculative derivative product that has caused thousands to lose millions in favour of banks.

Fortunately for lawyers acting on behalf of victims of this misrepresentation, each bank has a standard contract that applies throughout Spain, so, once a ruling is reached by a Court in respect of say, Banco Sabadell or Caja España, it is very difficult for a claim brought under the same grounds to be rejected by a different court (but may happen, after all, it’s the judiciary!).

So what’s the solution to this then? Well, if you ask me with my lawyer’s hat on, I’d say instruct me! But if you want to give it a go yourself, and give me a miss, this is what I propose:

1. Ask your bank for a copy of the swap contract, in case you don’t have it.
2. Go to the extraordinary website of the Asuapedefin and Apymifid associations and try to find the name of your bank among the 100 or so favourable rulings posted there (the column on the right of the screen). If you can find it, print it.
3. Get a letter out to the bank advising them that, due to the swap contract’s absolute nullity, you will not accept any more withdrawals from your bank account.  I have typed up a letter (see below) that will help you address these issues, and which you will need sent via official channels, i.e. “burofax”, irrespective of whether you hand-deliver or fax it, to ensure acknowledgement of content and recorded delivery, for litigation purposes.
4. If you can personally go to the branch to deliver the letter, do it. If you have found a copy of a ruling against your bank, don’t forget to enclose it.
5. The following can happen once they get the letter:
   1. that they bin it (very likely),
   2. that they make you an offer or settlement, which would normally come in a roundabout way so that you don’t notice that what they’re really after is to sting you once again (likely),
   3. or that they accept tearing up the contract and reimbursing you the sums you have lost so far (very unlikely).
6. If they offer you an offer or settlement, analise it carefully. At this point you need to understand one thing: a derivative contract is an agreement that is known, to financiers, as a “zero-sum game”. This means that one party’s loss is equal to its counterparty’s gain and therefore, the only way for you to win is that the bank loses, and vice versa. So when negotiating, do keep this in mind.
7. If you get really tired of trying to get an answer from the financial entity, then your best bet is to hire legal representation and go to court. This will allow you to get on with your life and with more productive matters.

Documents

• Swap Cancellation Letter to Bank Template (PDf – 121Kb)

Antonio Flores Litigation, Mortgages, Property abusive mortgage clauses, Banco Sabadell, BBVA, Caja España, mortgage clip, spanish swap, Swap Clause