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Have You Been a Victim of a SWAP Clause? Act Now!

March 3rd, 2010

spain-swap-clauses-spanish-mortgage-clipA 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.

Litigation, Spanish Mortgages , , ,

Nigerian Scam Warning: Brown Wilson and Easy 2 Loan Financial Company

January 27th, 2010

It has come to our attention that a fraudster under the supposed name of “Brown Wilson” is using the good name of our sister company, easy2loan SL, in a scam offering to lend money in return of a sizeable “commission”.

If you have received a letter or e-mail written in German or any other language, from someone under the name of “Brown Wilson” from Spain or anyone else, supossedly representing a company called Easy 2 Loan Financial Company, and offering you a bank loan you are being object of a fraud.

We would like to point out the following:

  1. easy2loan SL is currently not trading
  2. Following the above, our company is not offering any type of loan.
  3. No-one under the name of “Brown Wilson” works or has worked for and on behalf of easy2loan SL

If you receive any communication apparently coming from the company EASY 2 LOAN Financial Company offering you a bank loan, you should report it immediately to the nearest Police Station as it is a fraud. Do not pay any money.

Presseninformation

Achtung! Herr Brown Wilson; Easy 2 Loan Financial Company

Wir sind informiert geworden dass einer Betrüger gennant als “Brown Wilson” hat des Names unsere Firma, easy2loan SL, benutzt.  Herr Wilson leiht Geld aber man muss verschiedene Gebühren und Kosten Bezahlen.

Falls Sie einen Brief, Email oder Anruf von Brown Wilson aus Spanien bekommen und jemand sagt Sie dass Sie Darlehen aufnehmen konnen, denn ist es wahrscheinlich einer Betrug

Darauf, hinweisen wir das folgende:

1. easy2loan ist nicht Aktiv
2. Unsere Firma bietet kein Darlehen Dienst.
3. Kein Brown Wilson arbeitete jetzt oder hat nie gearbeitet bei easy2loan SL

Falls Sie irgendeine Kommunikation von Easy 2 Loan Financial Company bekommen betreffend ein Darlehes, bitte einleiten Sie sofort eine Reklamation an der Polizei, wie wiederholen dass es einer Betrug ist.

Spanish Mortgages

Pssst! Looking For Cheap Spanish Property?

October 5th, 2009

cheap spanish propertyLook no further. We had noticed early on this year (http://www NULL.marbella-lawyers NULL.com/forums/showthread NULL.php?t=193) how Spanish banks had offloaded large stocks of properties from their books and funnelled them to existing or newly incorporated real estate divisions under their control, much like SIV’s. This had turned Spanish banks de facto into the largest real estate agencies. What we had also noticed, based on the failed conveyance procedures our clients had endured this year due to them being unable to secure finance, was that banks seemed to offer significantly more competitive lending terms on those properties owned by them!

This weekend I’ve read for the first time in the financial press that banks are actually offering incredible financial terms on those properties held by them:

  1. 100% Loan to Value for residents (yes, you read it right, not a typo)
  2. Euribor plus a spread of only 50 basic points (or 0,50)
  3. Timeline? Take your pick. 40, 30, 25 years; anything goes.
  4. Interest-only? Not a problem Sir. Will it be 1, 2 or 3 years?
  5. Grace period? How would you like it, Sir? 1, 2 or 3 years?
  6. Opening commission? Early redemption commissions? It’s commission-free, Sir (!)
  7. Discounts available of up to 30 and 40% off from the market’s peak in 2007. Prestigious valuers’ appraisals ready-at-hand to prove the fall in price. Take your pick.

So where’s the catch? There’s none. There’s no small writing to be gleaned. It’s a straightforward deal. Banks will make money in two manners, both on the sale and on granting a mortgage loan on the property.

Reading through the spreadsheet just left you gobsmacked. It was as if we had stepped back in time using HG Well’s time machine to the good old days of …2006. How could you possibly miss on the opportunity of buying a property through them with all the above lending terms bearing in mind the Euribor Rate is at an all-time low? Touchée, that’s exactly the point to be made.

How can developers or Estate Agencies compete against this? They cannot, it’s that simple. Banks have become the fiercest competitors in the Property Market taking no prisoners in their wake. If you request a mortgage loan on any property other than the bank’s, they will only offer you 50/70% LTV (non-residents), Euribor Rate plus a spread ranging from 0,7-1,50%, opening commissions (usually 1%), early redemption commissions, no interest-only, no grace period, no…well, you get the drift.  This is clearly a competitive advantage that, unless you are a fellow bank, you cannot hope to overcome.  

If this is not a buyer’s market, then frankly, I don’t know what is.

Spanish Mortgages

Spain’s Senate Petitions Government to Suppress “Floor Clauses”

September 23rd, 2009

For those who are wondering what on earth is meant by a “Floor Clause” (Cláusula Suelo), we had already reviewed them in detail in our article 10 Common Abusive Clauses in Spanish Mortgage Loans (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/10-common-abusive-clauses-in-spanish-mortgage-loans) and in Antonio’s blog post Reduction in Mortgage Repayments Limited by Floor Clause (http://belegal NULL.com/blog-by-antonio-flores/reduction-in-mortgage-repayments-limited-by-floor-clause/).

A “Collar” clause is when the minimum interest rate to be repaid to your lender in a mortgage loan is capped i.e. 4,5%. So even if the Euribor rate heads below, you still have to pay the said minimum interest rate. These clauses are the very reason on why many borrowers are not benefitting from the historically low Euribor rate to which most Spanish mortgages are referred to plus a spread (diferencial). We had already anticipated last year in our post, Steep Drop in Euribor Translates into Cheaper Mortgages, that lower mortgage repayments were to be expected in 2009. Many borrowers which were gleefully expecting to lower their monthly mortgage repayments in 2009 have come to know and dread this obscure clause which was worded in their Mortgage Deeds unbeknownst to them.

We had criticised these clauses as being basically abusive to borrowers because they were one-sided. The public outcry has been echoed at last at the Senate this morning.

This initiative was fostered by Senator Mr Francisco Javier Vázquez who belongs to Spain’s Conservative party. The Senate has pleaded that these abusive clauses ought to be removed in compliance with Spain’s new law on Consumers’ Rights, Law 1/2007 (http://noticias NULL.juridicas NULL.com/base_datos/Admin/rdleg1-2007 NULL.html), which was enacted by the current Socialist Government.

It is estimated that this initiative, if upheld by Spain’s Socialist Government, would benefit an estimated two out three borrowers translating into cheapermortgage repayments.

Source: El Mundo daily newspaper. (http://www NULL.elmundo NULL.es/elmundo/2009/09/23/suvivienda/1253700997 NULL.html)

Spanish Mortgages , ,

Spanish Mortgages: No Tax on Term Extension or Switching to Interest-only

June 26th, 2009

stamp-duty-spanish-mortgageSpain’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 switching  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.

Property, Spanish Mortgages, Taxes