The Lawbird Tribune

Spain’s Tax office has replied within the last month two binding legal queries which shed some light onto the taxation of the amendment of mortgage terms.

On the first reply of 25th of May, the Dirección General de Tributos (DGT) clarified that swapping over to interest only will no longer attract Stamp Duty. On the second reply of 10th of June, the DGT has stated that changing the mortgage’s reassessment date will no longer pay Stamp Duty either. It would be regarded as exempt following art 9 of Law 2/94. E.g. a borrower changes the mortgage resetting from once a year to a quarterly basis.

Regardless if the borrower chooses one or both options they will not attract tax. Also, a lender cannot lawfully charge more than 0,1% to extend mortgage repayments. 

This is welcome news indeed for struggling mortgage borrowers that will now have more options available to them without being taxed on choosing them. Reducing citizen’s tax burden is always the right path on the road to financial recovery.

A mere delay in paying the let for a second time, by a non-paying tenant who has been previously sued by the landlord, will be a just cause for an eviction procedure. This new scenario has been made possible thanks to a recent rulling by the Spanish Supreme Court of Justice.

As explained in my article on Eviction Procedure in Spain, one of the strategies a non-paying tenant could follow to stall the procedure after the landlord had filed a law suit against him requesting a formal eviction, was by paying late (“enervación”). This stalled the procedure and forced the landlord to continue with the tenancy agreement. Albeit the tenant could employ this tactic only once.

The new change will mean that if the tenant should pay belatedly a second time (i.e. for two consecutive months), after the landlord has previously initiated an eviction procedure for the same reason, it will no longer mean the case can be dismissed or thrown out of court. It will mean the tenant breached the contract. Period. Spain’s Supreme Court has now unified the different approaches and regards that the tenant has breached the Tenancy agreement, provided the contract stipulates a deadline in which the payments have to be met every month.

This puts an end to non-paying tenants which continuously abused the legal system on deciding when they felt fit to pay their landlords in lieu of when they were meant to. This change has been brought about by one of the latest ruling of Spain’s Supreme Court. This is the second ruling on the same issue with a similar outcome which will now set jurisprudence in our legal system. The prior ruling is also from this year.

Both of these rulings aim to address the increasing problem landlords are faced with in Spain on letting their properties to professional defaulting tenants. Additionally, the dire financial circumstances have forced what used to be trustworthy tenants into defaulting their lets and abusing our system too. These rulings will now add new legal tools to defend landlords, as in Spain, the laws have been traditionally biased towards tenants for historical reasons which need to be adapted to social reality without delay.

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 93. 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 preffered 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.

An example of enquiries about such bogus firms are the following:

• Martinez e Beneficio
• Alberto Ganez Y Socio
• Perez, Gonzalez and Associates & Perez, Carrera and Associates

Our recommendation, as always, is to never ever pay moneys upfront if you have the slightest suspicion about the legitimicay of the people you are dealing with.
Other interesting related links:

• Protecting Yourself from Pyramid or “Ponzi” Schemes - 21st February 2009
• Fraudulent sell of shares from Spain - Boiler rooms UK FSA’s link.
• Timeshare resellers: Be careful! - 23rd of August 2001
• Lottery Fraud: Yet Another Scam - 24th September 2001
• Is the ‘El Gordo Lottery Sweepstake Company’ a genuine company?
• European Mediation Limited
• Bogus Holiday Club Membership (mostly in Canaries)

Today, Thursday 26th of February, was the scheduled day for the hearing on Aifos’ second proposed administration procedure. Only minutes before the hearing was to take place before Malaga’s Mercantile Court Number 1, Aifos’ legal representatives striked an agreement with the legal representatives of the petitioner. Aifos’ lawyers provided guarantees of payment that amounted to €311,000 which were accepted.

Mr Enrique Bujidos, an Aifos’ representative, declared to the press they had hired PricewaterhouseCoopers (PwC) to refinance the ailing developer and help it stand back on its own feet. Thirteen banks have already shown their interest in providing a syndicated loan to the developer as well as adjourn pending repayments.

As history’s finest investor, Mr Warren Buffet, once said, “You never know who’s swimming naked until the tide rolls out”. Well the tide has rolled out and investors are panicking withdrawing and liquidating their portfolios in a frantic rush against time to raise funds. It is in such dire times of massive redemption requests when Ponzi schemes are unravelled in all crudity and it becomes all too apparent who was in fact swimming naked. Within the last months we’ve witnessed Madoff’s and this very week Stanford’s Ponzi schemes imploding, sucking in their wake thousands of millions of euros. Are we immune in Spain to such financial ploys? Not so.  

What is a Ponzi Scheme?

This scam involves promising high yields (above the market average) to dazzle gullible investors. These yields are actually paid to existing investors from the funds of newcomers. So a Ponzi scheme needs to continuously lure in a base of new investors to self-perpetuate itself. They normally spread themselves like viruses by word-of-mouth but do not frown advertising themselves in local newspapers. The first recorded case was in the USA in the last quarter of the XIX century although its name is taken from an Italian-American immigrant, Charles Ponzi, who fleeced thousands of investors in Boston in the 1920’s out of 10 million dollars. 

How Long do they Last

Not long, normally only months or a couple of years at most, a noticeable exception would be Madoff’s which lasted remarkably over three decades escaping all detection. As these pyramids need to continuously find a new influx of investors to meet the promised repayments of existing ones they eventually self-implode collapsing like a house of cards as they are unable to keep the rapidly growing pace. Noticeable cases in Spain (aimed exclusively at Spaniards) have been Forum Filatélico and AFINSA both dealing with postage stamps.

I’m too Smart to be Caught in One

No-one is too smart. Judging by Madoff’s and now Stanford’s cases in which the World’s supposedly finest and most sophisticated affluent investors have been caught-up one should not underestimate one’s own greed. These scammers are top salesman and bank on people’s greed to make a living. In fact these Ponzi schemes are not that rare at all in Spain.

If you pick up any weekly English newspaper sold in Spain you will read advertisements that promise you suspiciously two digit yields from exotic and often obscure foreign opportunities. Naturally, these financial advisors are unregulated by Spain’s CNMV (the equivalent of the UK’s FSA) and prey exclusively on foreigners, preferably on their own countrymen to create rapport. The reason that Spaniards are not targeted is that they would quickly raise the alarm of the local authorities so they are careful to only target foreigners, the elder the better, so as to go undetected for as long as possible. Then regularly wind up these boiler rooms and move on to their next scam. As it’s often said, if it sounds too good to be true it often is.

What do I do if I Suspect of One?

You can contact Spain’s CNMV to check the financial advisors that have contacted you are indeed regulated to offer you financial products such as company shares. The CNMV regularly updates in its website such fraudulent companies. If you suspect the yield is too high you may want to take a second professional opinion from an unbiased source such as a chartered financial advisor or a qualified lawyer.

We have today published the first of a series of video blogs on the Fortuna Land Case which we wish to alternate with written information as the case develops. We think it’s a good idea so that anyone who did not have the opportunity to be in the conference we held in Ireland could see what we look like.

Our aim with this flow of information is to help keep clients updated, the case alive and also give anyone the opportunity to comment on each appearance or publication in respect of the updates.

Mercantile Judge number one of Málaga has accepted the second proposal for a forced administration procedure for the developer Aifos, as stated by Diario Sur.

In a resolution from 8th of January the magistrate considers that Aifos now meets the necessary criteria to be declared under administration. Formerly the first forced administration proposal was rejected because the magistrate was of the opinion that its insolvency had not been substantiated enough in the petition. This second proposal has proved satisfactorily that Aifos owes, at least, 7.9 million Euros to different creditors.

Aifos will now be given a formal opportunity to object to the forced administration procedure proposed by one of its numerous creditors.

It seems that the Operacion Fuentespino, the name given by the National Police in Spain to the Fortuna Land case,  is gathering pace as a significant (although small in comparison with the real figures) number of people who invested in the scheme have decided to group to press charges against the perpetrators.

When approached for advice in respect of how to go about filing I cannot stress enough the importance of coming up with a solid, well-presented and well-argued suit so that there are few options for the defendants’ legal team to stall the proceedings in favour of a more lenient and slow civil case.

This means that a “denuncia” per se, whilst it is a way to inform the authorities that an offence has been commited, does not make the claimant part of the procedure and therefore he will not be entitled to argue the case, counter-argue, propose measures in respect of the suspects (even their freedom), their assets or those of third parties who have somehow taken ownership (for example, Finca Cazadores, now in the hands of a company and an individual), appeal Court decisions, request information from bank accounts in Spain or abroad, propose interrogations or testimony depositions etc.

Whether we like it or not, the above case by-and-large affects foreigners (perpetrators and victims), originated in a little known investment concept in Spain, the land banking business (except for property developers) and would be widely considered as a white-collar crime in most jurisdictions. This is why it is viewed in Spain as anecdotical and would not make it to the headlines, unless of course victims grouped and acted promptly because a slack response is, in my opinion, no response at all.

The companies DICO Obras y Construcciones, DHO Infraestructuras and Obrum, three of the Aifos numerous creditors, have requested before Málaga’s Mercantile Court number one a forced administration procedure as result of the funds they are owed, in total more than €540,000 €.

This is the second time creditors request Aifos administration. The first time was last November, but the Mercantile judge turned down the creditors petition of a forced administration procedure because they had been unable to prove Aifos’ alleged delicate financial situation.

In Spain, companies undergoing a dire financial situation can either initiate voluntarily an administration procedure or else one of their creditors may force it. The latter has been the case. In such procedures, the creditors who force them benefit from a privilege to recover 25% of their debt in the event of a successful procedure.

Aifos owes 850 million Euro (718 million GBP). It’s largest creditors are Banco Popular with 200 million Euros, followed by Banco Pastor with 33 million Euros. Another 96 companies form part of the creditors list to which Aifos has been owing funds for the last 2 years.

Aifos has currently employed 2,000 workers.

Source: Cotizalia

The (12 month) Euribor fell today to 3.085%, and will set the average for December at 3.4%.

The Euribor (ER) is the rate of interest at which banks lend to each other. It is the reference which most Spanish Lenders take to set the mortgages’ rate of interest. This rate is reviewable by your bank, depending on your Mortgage Deed, every six months or once a year. The European Central Bank (ECB), which sets European Monetary Policy for all EU members with the exception of the UK, has no direct control over the ER.

Post credit-crunch fear, shortage of liquidity in the markets, widespread bankruptcies and plummeting stock prices unseen since 1929’s infamous Wall Street’s Stock Market Crash has gripped banks with fear in the last quarter of 2008. This fear to lend to each other due to the mutual mistrust on one another’s writedowns has fuelled the ER hiking it to levels which were unprecedented historically.

In line with the US, the European Central Bank has lowered consecutively the interest rate which indirectly affects the ER. The Euribor rate reached an all time high on October 2008 peaking at 5.393%. To this you must add the differential on paying a mortgage which typically for a non-resident will be 1% on top of the Euribor rate. This caused a surge of mortgage defaults.

The reason being is that the ECB is lagging behind the United States Monetary Policy which has now set its interest rate at almost zero (0.25% to be exact) to hopefully fuel the ailing American economy. So the ECB has quite some catching up to do next year as its interest rate is currently held at 2.50%. Currently the Euribor rate for 12 months is set at 3.085%

In any case the continued policy of the European Central Bank to lower the interest rates over the last months will help to drive down the Euribor rate which is always news most welcomed by everyone, specially borrowers. Spanish banks will revise and adjust the Euribor rate which in turn will lower your monthly mortgage repayments. This normally happens in July.

For example, a typical mortgage of €300,000 revisable next July 2009 could drop by as much as €550 a month if the Euribor rate continues its downward trend and hits the 2% forecasted by financial experts by mid 2009.

So for all those that are struggling to pay their mortgage loan and are considering defaulting you should be aware of this significant drop in 2009. We suggest you find out at your bank when the Euribor rate will be adjusted for your own particular case and how much money you stand to save.