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Courts in Spain get tough on Foreign Currency Mortgages

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Recent Court decisions in Spain have highlighted the fact that foreign currency mortgage problems are not limited to jurisdictions such as Cyprus where largescale problems have been incurred by borrowers in the Swiss Franc denomination and are currently subject to ongoing court Actions in Cyprus.

These rulings demonstrate that the Spanish Courts are also getting tough on foreign currency mortgages.

There have been a series of such Court cases in Spain, primarily through the Courts in Madrid against BankInter in relation to specific mortgage clauses within their mortgages that gave raise to losses by borrowers.

A judgement by the Court of First Instance No 86 in Madrid issued on 22nd September 2017 involved a case against BankInter.

In that case the Court decided that the bank should cancel the late payment clause in the mortgage agreement and that the costs should be recalculated to effectively take out the exchange rate risk and losses that were incurred due to the mortgage being in a different currency. The currency of the mortgages had been set in Japanese Yen.

Euro & Japanese Yen keys on keyboardThe court took the view that the clauses that linked the mortgage to things that happened abroad – i.e. outside of Spain - were abusive and therefore ordered that these were effectively cancelled and the clients put back to a position as if those clauses didn’t exist; and the mortgage had been on the basis of a straight forward Euro loan. 

Other recent cases in Spain have confirmed this approach by the Courts and have strengthened the argument that foreign currency mortgages are abusive, not transparent and not  generally in the best interest of clients.

On 19th December 2017 Court Number 48 of Barcelona ruled against Caixa d’Estalvis (which no longer exists on its own and is now part of BBVA) in a case where a mortgage of €300,000 had cost the borrowers €122,773 extra due to a foreign currency clause linked to Japanese Yen.

The Court again ordered that the Bank recalculated the mortgage back to Euros and that they (the Bank) restored the clients back to the position they would have been in had the mortgage always been in Euros. This included returning the over payment plus costs.

In this case the bank had tried to argue that the borrower was a “sophisticated investor” as he was a businessman and therefore was able to understand the implications of the mortgage. The Court rejected this argument on the grounds that the purchase was the main residence and not related to his business.

Another case dated 22nd December 2017, this time in Court number 3 in Madrid, had a very similar result. In that case the mortgage was taken out in Japanese Yen and the Court again ruled that the multi-currency clause in the mortgage was invalid due to a lack of transparency and that the borrower should be put back into the position as if the mortgage had always been in Euros.

Although it was common for British people to take out a multi-currency mortgage in some countries, this was not common for foreigners purchasing second homes in Spain.

Therefore, if any borrowers have a foreign currency mortgage in Spain these rulings mean that it is possible to raise a claim back to the position that they would have been in if the mortgage had been in Euros.

Property owners with a Swiss Franc or Yen Mortgage in Cyprus may wonder what impact these two decisions have on their cases. Unfortunately these decisions, just like the previous similar decisions in the Courts of Hungary, Croatia and Greece, are not binding in another country and therefore cannot be used to strengthen a case in Cyprus. What is clear, is the Banks in Cyprus and other Jurisdictions will be monitoring all proceedings and rulings achieved in favour of borrowers will naturally have an impact upon their future actions.

If you have a foreign currency mortgage in Spain or in Cyprus and would like to further information please contact us for a no obligation discussion about how we can assist.