MORTGAGE CLAIMS: Banks now also on the hook for mortgage setup costs

supreme court ruling on bank guarantees means potential payout for buyers of spanish boom property

Spanish Supreme Court (Tribunal Supremo) in Madrid

A ruling by the Spanish Supreme Court (Tribunal Supremo or TS) means that banks can be obliged to repay some or all of the mortgage set-up costs they passed on to borrowers.

In December 2015 the Spanish Supreme Court (Tribunal Supremo or TS) found that clauses in mortgage contracts used by lenders BBVA and the Banco Popular forcing borrowers to pay set-up fees like the notary and land registry were abusive, and therefore null and void. Now, in individual cases, courts around Spain have started awarding borrowers refunds from banks based on this ruling. This comes hard on the heels of the mortgage interest floor clause scandal, in which banks illegally set lower limits for mortgage interest rates, and overcharged borrowers to the tune of €4 billion when base rates fell.

The ruling, reference 705/2015, declares the lenders themselves the sujeto pasivo, or party liable for paying setup costs for Spanish mortgages, not borrowers. Mortgages are an asset for lenders, and a liability for borrowers, so lenders are the ones with the biggest interest in getting mortgage loans notarised and registered, to protect their assets. However, lenders used mortgage contract clauses to pass on these costs to borrowers, and this new ruling should put a stop to this, and open the door for existing borrowers to claim back some or all of these costs.

Mortgage set-up fees include the notary fee, administrative expenses, land registry fees, and stamp duty, known as Impuestos de Actos Jurídicos Documentados, or AJD. Mortgage contract clauses forcing borrowers to pay these set-up costs have been standard practise in the industry until now, so anyone with a mortgage in Spain will have paid them at the time of taking out the mortgage with what is called a provisión de fondos, or provision of funds.

What kind of sums are we looking at? To give you an example, for a typical mortgage of €140,000, notary costs would be around €550, administration costs €250, land registry costs €230, and AJD €1,800, totalling around €2,830. Then there are the valuation costs, say €300, which lenders also insist borrowers pay, with a grand total of more than €3,000 in set-up costs for a typical mortgage.

WHAT CAN YOU CLAIM BACK?

Can borrowers claim back all these fees? It’s not yet clear, because courts in different areas are interpreting the TS ruling inconsistently for the time being. Some judges are ordering a refund on all fees except AJD, with is the biggest expense by far, typically 75% of set-up costs. “Based on rulings by the Supreme Court and the Provincial Appellate Court of Zaragoza,” explains an article in English at the Spanish daily EL PAÍS, “lawyers consulted by EL PAÍS said it is the banks who should put up with the cost of processing the stamp duty. On the other hand, the provincial appellate courts of Oviedo and Pontevedra have ruled that this fee should be paid by the client.”

EL PAÍS also reports that “In the last six months, at least six banks – Santander, BBVA, CaixaBank, Bankia, Sabadell and Ibercaja – have changed their clauses and now cover around 30% of these associated fees, in a bid to prevent further lawsuits.”

How do you get your money back? You can ask your bank politely to send you a refund, but that is unlikely to work. I get the impression, from what I have found out, that legal action will be required in most cases.  I’m looking into group-action claims for borrowers who have overpaid for both mortgage floor clauses and setup costs. If you have a mortgage, or even if you have paid off your mortgage in the last four years (going back to December 23rd 2011), you may be entitled to claim back some of the mortgage setup costs.

Make sure you sign up for my news bulletin to be kept informed, or fill in the form on the Spanish mortgage refund claims page to go one step further and let me know you have a mortgage in Spain, and are interested in knowing more about claiming back setup costs.

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