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FLOOR CLAUSE IN YOUR DEED OF MORTGAGE

What is a Floor Clause?

A lot of mortgages granted by Spanish Banks for the purchase of property with variable interest are referenced to Euribor (Euro Interbank Offered Rate).

This means that the interest rate of the loan is fixed by adding two components, the reference index being the most common the Euribor and a differential margin (fixed amount) agreed with the bank.

In many Deeds of Mortgage given the fluctuation of the Euribor floor clauses were included which established that despite the downward fluctuations of this reference rate, the rate of interest applicable to the loan could not fall below a minimum.

Why are these clauses questioned?

These clauses have been questioned on the grounds that they have not been negotiated individually by you the customer, but have been imposed by the bank without you being  aware of the consequences of including this agreement in the loan.

When the Euribor started to fall, the Floor Clause was activated and you as the customer paid more interest than you would have paid if the interest rate applied had been established adding the two components, i.e.  Euribor plus the differential margin.

When this happened customers of the banks started to denounce this practice arguing that they had not been informed clearly.

What have the courts resolved on this matter?

In 2013 the Spanish Supreme Court declared this type of clause used by some Spanish banks, as null and void, this has come in to effect since May 2013.

However, a resolution from the European Court of Justice has confirmed that if the clauses are declared null and void this is applicable retroactively since the signing of the mortgage.

Therefore the banks legally have to refund all the surplus monies paid since the execution of the Deed of Mortgage.Floor Clause

Conclusion

Therefore customers who have such clauses in their mortgage loan can now proceed to claim the surplus amounts  charged by the bank since their mortgage was granted.

Although each case will be analyzed individually by the court to check  if the bank has informed the customer in detail about the consequences of this type of Floor Clause or not.

Procedure. Initiative of the Spanish Estate to make the  recovery of money easier.

The State wanted to regulate this matter in the Royal Decree 1/2017 of January 20th to expedite the refund of the surplus amounts paid through an out of court procedure.

Customers will have to present a claim to their bank requesting that the Floor Clause is made null and void and applying for the refund of surplus amounts paid.

If this claim is accepted by the bank they must remit to the customer the calculation of the money to be returned and the parties will try to reach an agreement to resolve this matter.

There is a term of 3 months from the submission of the claim for both parties to reach an agreement.

If an agreement is not reached, the claim will have to be made through the court.

 

If you need any further information on this subject please contact us  on

rberdaguer@berdaguerabogados.com.

 

Please note the information provided in this article is of general knowledge only and is not to be construed or intended as substitute for professional legal advice.

Rafael Berdaguer
Lawyer within the firm
Rafael Berdaguer Abogados based in Marbella, Spain.
www.berdaguerabogados.com
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