Who pays mortgage expenses – lender or borrower? The jury is still out

Spain is divided between Provincial Courts (Audiencias Provinciales) who rule that lenders should reimburse borrowers for 100% of mortgage setup costs, and those that do not think banks should return the AJD tax, which represents the lion’s share of setup costs. While waiting for the Spanish Supreme Court to clarify the issue, we will review the current case law.

Image’s source: Vozpopuli

The clause that appears in mortgage loan deeds commonly described as “expenses borne by the borrower” (gastos a cargo del prestatario), is generating much expectation in recent weeks.

The AJD tax, in the middle of the controversy

It is estimated that consumers spend an average of € 3,500 on mortgage setup costs, between taxes, registration and notary. It is an important sum, both for lenders and borrowers, so the jurisprudential evolution in this regard causes so much expectation.

Spanish courts cannot agree on how much banks should return

If the court considers that the clause expenses charged to the consumer is abusive due to the fact of being generalized contracts in which the consumer does not have negotiating capacity, the bank will have to take care of all the expenses of constitution of the mortgage: notary, registration and tax.

If the court considers that these expenses benefit both parties equally and both the bank and the consumer are interested in formalizing the deed, the bank will be responsible for half of the expenses.

If the court considers that the interest of the consumer is only the loan itself, as a contract, and it is the banking entity that has the greatest interest in being formalized before a notary and registry, in order to have greater guarantees, then the bank will not be responsible for the AJD tax.

The controversy is greater when referring to the AJD tax (Actos Jurídicos Documentados), due to this tax supposes between 70 and 80% of the total of the expenses. The fact that the mortgage expenses are declared null assumes that the bank must return to the borrower the amounts paid in the constitution of the mortgage. According to Intereconomia.com, the Spanish banks risks the payment of 18,300 million euros, almost triple the return estimated by floor clauses.

At the moment, as we see in the map above, 10 provincial courts (Audiencias Provinciales) have ruled that it is up to the bank to return the mortgage expenses to consumers, including taxes (AJD), compared to 8 who consider that only the Notary fees and registration are returned, but not the tax.

For example, the Provincial Court of La Rioja, in Judgment delivered on October 31, 2017, indicates as an abusive clause the expenses borne by the borrower since there has been no individual negotiation, but has been predisposed by the bank in a generic and arbitrary manner and that has caused, to the detriment of the consumer, an imbalance between the obligations of the parties. However, it limits the effects of the nullity to the return of all the expenses corresponding to the Property Registry and half of the expenses corresponding to the Notary, understanding – in relation to the latter – that both borrower and lender can be considered interested in granting the mortgage loan deed.

The sentence that will unify the criterion

The Third Chamber of the Supreme Court will be responsible, in the next few days, to establish jurisprudence on mortgage expenses with a ruling that will unify the criteria of the rest of Spanish courts. This sentence had to be made public on January 31, but for the time being, we will have to wait a little longer.

Until the Supreme Court makes a clear decision on this matter, the balance is not tilted on either side: consumer or bank.

* This article has been written by a third party not owned or controlled by Spanish Property Insight (SPI).
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