European Court of Justice Lukewarm Ruling on Spanish Foreclosure Laws
A recent ruling by the European Court of Justice (ECJ) has given Spanish Courts dealing with loan foreclosures the right to interpret contracts and their clauses, but has not declare eviction laws completely illegal, as has been widely publicized. The Q & A below summarize the ruling and its effects on borrowers:
Why did the ECJ get involved in this matter? Spanish foreclosure procedural laws are deemed, among legal professionals, as a one-way street. This means that if your bank forecloses you either pay up the whole sum owed or you instigate criminal proceedings to prove that the loan was fraudulent. There are no other possible defenses to stop ultimate eviction under these declaratory proceedings
Is my mortgage loan illegal by virtue of this ruling? No but now Spanish Court have the powers to delay or freeze the eviction of home buyers, who have fallen behind on their mortgage payments, whilst they assess the fairness of certain terms and conditions within the loan contract that, according to the ruling, create “significant imbalance” to the detriment of the consumer.
Which terms were referred to in the ruling? The ECJ criticized the contract submitted to them on 2 grounds: it allowed the bank to take away a home after just one failure to pay an instalment, and provided for a default interest rate of 18.75 per cent. According to the ECJ, Spanish Courts dealing with foreclosures are now able to determine the validity of these clauses.
So how does this affect my existing mortgage loan? The ECJ has opened the door for Spanish Courts to annul mortgage loan clauses that are objectively unfair, such as those quoted above. However, it does not give the borrower the right to stop paying the loan, avoid the debt altogether or stay in the property for good without keeping up the repayments. As journalist Mike Shedlock wrote in respect to Mr. Aziz, the claimant whose loan was scrutinized by the ECJ, “I suspect he can afford to pay 0% and nothing on principal”…which gives us an idea of the where the real problem lies!