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Home > Litigation, Spanish Mortgages > Have You Been a Victim of a SWAP Clause? Act Now!

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 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 to see if we can act on your behalf.  Strength will be in large numbers.

Litigation, Spanish Mortgages , , ,

  1. michael
    July 2nd, 2012 at 11:28 | #1

    From 2009 to 2011 i was harrased by Banco Popular in spain when they informed me i had a swap aggreement with them and that i had to cancel this at a cost of €20,000.00 when disputing this all my letters were ignored and as it stands i have not heard from the bank for over 12 months.
    If decided to sell my home could the bank cause me any problems regarding this matter?
    I told the bank some 18 months ago that they would have to take me to court as i fill i was not informed of this product, and as of yet have heard nothing.

  2. Antonio Flores
    July 2nd, 2012 at 11:47 | #2

    Dear Michael, it is fairly normal for the bank to not answer letters when it comes to these products, such is their lack of professionalism. It is for these reasons that you need to now consider taking legal action, as hundreds of defrauded customers have already done, with a view to have this contract declared null and void.

    I would say that for 5 cases are that are won, 1 is lost. Generally, grounds to bring an action are based on the lack of information (mis-selling) provided when offering this product.

    Should you succeed in Courts, not only will the contract by terminated but also, you would have the capital reimbursed, plus interest and most probably, legal costs.

  3. michael
    July 4th, 2012 at 19:02 | #3

    Thank you for you reply, could you tell me if i sold the property be the matter was resolved what could happen when exchanging contracts.


  4. michael
    July 4th, 2012 at 19:26 | #4

    michael :
    Thank you for you reply, could you tell me if i sold the property before the matter was resolved what could happen when exchanging contracts.

  5. Antonio Flores
    July 10th, 2012 at 08:33 | #5

    Michael, if yo sold the property and paid off hte bank, you could still chase the bank for the sums taken illegaly, if this contract was ruled null and void by the Courts.

  6. michael
    July 19th, 2012 at 10:07 | #6

    I think the bank should have to take me to court for any contract or money they think i have or owe. How do i stop the bank from taking any money from the sale of my house.
    I have also asked the bank for an interest only period on my mortgage and they have given me a proposal which includes a cancellation fee of the SWAP, which again only the bank benifits. Are they allowed to do this as they know full well that i do not agree with this contract.

  7. Antonio Flores
    July 19th, 2012 at 11:34 | #7

    Michael, in principle you have no option but to go with the bank’s request should they refuse otherwise. This does not mean however that you cannot, after completing the sale, file a claim in Court to nullify this contract because agreeing to pay does not validate a contract that is, subsequently, declared null and void.

    I would suggest however that your representative sent notice to the bank advising that whilst you will be accepting that they deduct this sum, you will reserve your legal rights.

  8. michael
    August 1st, 2012 at 18:16 | #8

    could you recommend a representative for me………i live in lanzarote and i am not having much luck here.

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