Court rule on Mortgage Floor Clause Update24/07/2013
After the recent Supreme Court judgement in which the court declared all floor clauses within mortgage agreements signed with BBVA (Spanish second largest bank) were abusive, hence null and void, some other first instance courts have started to apply and execute the legal precedent in claims filed by mortgagees.
The banks initially admitted the Supreme Court precedent and started to remove the floor clauses of the agreements which, obviously, reduced the payments in accordance with the new (and lower) interest rate.
However, the banks were reluctant to agree a retrospective effect of the clause removal, i.e. taking the reduction of the payments back to the date when the mortgage deeds were signed, and return the amounts thus paid in excess.
The first judgments to clarify this dispute have been issued and are, in all cases, quite clear: the floor clauses are null and void, so their effect in the agreement must be taken accordingly in the sense that the actual monthly payments of the borrowers should be calculated as if the clause had not been in the contract. In another words, the banks have to return the amounts paid in excess from the very date the contract was signed.
In Badajoz and Barcelona two first instance courts judged against many other banks and made them pay back to the clients retrospectively.
In Murcia an important case was held, in which BMN (formerly CajaMurcia, very active in the real estate boom of the past decade in Murcia and Alicante) alleged that they only included the floor clause in “approximately 30 % of the mortgage agreements proposed by the bank”. An independent research commissioned by the court discovered that the floor clause was entered in 70 % of the agreements, if with different names, structures and mechanisms – however, they were all floor clauses impeding the interest rates in the mortgages to fall below 3 %.
In all the cases commented above, the banks have been forced to return all monies paid in excess and its interest.
The banks insist in their standing: mainly the clauses are in the contract and were known and freely agreed by the borrowers.
However, the general spirit of the Supreme Court has been detailed very precisely by the court number five of Barcelona in the case against BBVA, which says: “the floor clause was in the agreement, but concealed among an outstanding amount of details, in such an way that it is clear that its intention was to divert the attention of the borrower”.
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