Spanish Law Tribune

High profile developer Habitat filed for receivership in December 2008. Its receivership procedure was the second most important in Spain after Martinsa-Fadesa which filed for receivership in 2007 owing in excess of seven billion Euros.

Barely two years on, an agreement striked at the Creditors General Meeting  held early on this year will reschedule Habitat’s outstanding financial commitments.

As we had explained previously, the aim of Spain’s Insolvency Act of 2003 is to allow financially struggling companies to buy time and re-arrange their financial commitments with their creditors, either by extending the loan period or by reducing the debt burden or both. The whole receivership procedure is geared towards saving these ailing companies which may be undergoing severe temporary cash flow problems.

Following the trail of developer Llanera, which also concluded successfully its receivership last year, 82% of Habitat’s financial creditors have backed the overhauled debt plan as well as by 80% of the normal creditors. The former are namely major lending institutions which constitute the bulk of habitat’s debt which tallies over a billion Euros. The latter would include off-plan buyers for example.

It is foreseen Habitat will officially exit its receivership on the 19th of April this year when the judge of Barcelona’s Company court number three will put an end to it.

The second proposal has a shorter waiting period of only 5 years but in return creditors forfeit 30% of their credit recovering only 70%.

Source: Invertia (http://www NULL.invertia NULL.com/noticias/noticia NULL.asp?idNoticia=2315979)

raymundo Property, Uncategorized bankruptcy, habitat, insolvency, receivership

Spain’s Government has raised Capital Gains Tax (CGT) for both residents and non-residents to 19% as from the 1st of January 2010, which effectively means any property sold on as from the said date will attract CGT at 19%. This tax change seems to have gone blissfully unnoticed by the majority of people, or this is what you realise when you read what the so-called experts write on the many different expat forums available.

After a protracted process grounded on discrimination, the European Commission forced Spain to equate the Capital Gains Tax for both residents and non-residents alike leaving it at 18% as from the 1st of January 2007. Previously it stood at 35% for non-residents and 15% for residents.

This new tweak is related to Spain’s widespread efforts to prop up its dwindling coffers in view of its beleaguered Economy. This policy of increasing taxes in the aftermath of a property bubble has come under heavy criticism by reputed financial experts and may even hamper an early recovery as well as possibly incentivizing under declaring.

The following table sums up CGT amendments over the last years:

For those who are still sceptical, and doubt wether this is true or not, I refer you to the official Modelo 212 instructions (http://www NULL.agenciatributaria NULL.es/AEAT/Contenidos_Comunes/La_Agencia_Tributaria/Modelos_y_formularios/Declaraciones/Modelos_200_al_299/212/Instrucciones/instr_mod212 NULL.pdf) (PDF – Spanish) for further confirmation.

Related article: Taxes when Selling Spanish Property (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/taxes-when-selling-spanish-property) – 2nd May 2002

raymundo Property, Taxes Capital Gains Tax, cgt, modelo 212, modelo 212 instructions, spanish capital gains tax, Taxes

A SWAP is an insurance policy which purpose is to offset major fluctuations in, for example, a benchmark interest rate to which a mortgage is referred to. In Spain most mortgage loans are referred to the EURIBOR rate (Euro Interbank Offered Rate). The EURIBOR is the average interest rate at which a panel of 57 European banks lend to one another. The idea with a SWAP clause is that you pay a small fee on a regular basis to your lender as a normal insurance to offset against major interests rate fluctuations and if the Euribor rate should for example fluctuate wildly, as it did back in October 2008, hitting an extreme 5% your repayment interest rate would be capped at say 3%. Basically it’s as if you agree into signing your own collar clause where you are assured to pay a capped interest rate to your lender. This in theory.

In practice a SWAP is a complex financial instrument that has been in use by large corporations since the fifties to offset against currency and interest rate fluctuations. The problem came when it was recently mis-sold en masse during the last boom years to unsuspecting borrowers as a “safe” product without disclosing in full the pitfalls it may entail should the interest rate fluctuate steeply. Or even worse, in many cases it was bundled together with the mortgage loan itself as “free of charge”. Who would in their sound mind turn down a freebie which is tagged by a bank as “safe”?

When you hire a SWAP (AKA as “clip hipotecario” in Spanish), unbeknownst to many you are tacitly making an educated guess on where the interest rate will be heading next; so it’s basically taking a gamble with your hard-earned money! This product was marketed and sold as something “safe”  and at times even as “free”, but its drawbacks were not disclosed to borrowers which in most cases lacked the necessary financial savvy to ascertain clearly what they were being (mis)sold or even been given away as a “free” insurance. What was seldom explained to potential customers was that if the benchmark interest rate fell below a certain percentage it’s the borrower who had to pay to his lender an amount to offset the shortfall in the interest rate! And it’s no small amount either, tallying hundreds of euros a month in the worst cases which are to be paid in addition to the mortgage repayments of already struggling borrowers. So it has been an unexpected double or even a triple whammy for those whose source of income is in sterling pounds bearing in mind the poor exchange rate to the Euro over the last two years.

If you want to cancel a SWAP clause through a Notary public you will have to pay for the “privilege” on average €15,000 for individual borrowers and €40,000 for companies. This is an added grievance to those borrowers which had a SWAP tagged onto their mortgage loan as a “freebie” unbeknown to them.

This “insurance” was largely mis-sold or even given away “freely” over the last years, at the peak of an all-time high Euribor interest rate, when lenders knew full well this rate was bound to reverse its trend and start heading down hitting historical lows. So basically they were (mis)selling a product which was going to bring huge losses to its clients within months of having hired it! As American novelist Mark Twain used to note with an acid sense of humour: “A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain”

And now the positive news: There have been a string of likeminded rulings both from lower and High courts in 2009 and 2010 establishing that SWAP clauses offered en masse to unsuspecting mortgage borrowers are really abusive clauses (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/10-common-abusive-clauses-in-spanish-mortgage-loans) and determine they should be regarded as null and void as they lack consent. This avoids borrowers having to pay €15,000 or more to have them cancelled at a Notary. Moreover, Judges have awarded a full refund to borrowers who litigated on the commissions unduly paid to their lenders over the last years because of this insurance policy which was not properly explained to them. Even Spain’s Ombudsman has condemned them as abusive.

What to do?

If you think you may have been a victim of a SWAP clause in your Spanish mortgage call or e-mail us (http://www NULL.lawbird NULL.com/services/contact) to see if we can act on your behalf.  Strength will be in large numbers.

raymundo Litigation, Spanish Mortgages abusive mortgage clauses, bankinter clip, mortgages in Spain, Spanish Mortgages