They were supposed to protect banks and punish homeowners in difficulties — but they didn’t prevent banks from collapsing.
In a somewhat unexpected move, the EU Advocate General, Maciej Szpunar, recommended that all Spanish mortgages containing a clause allowing banks to initiate foreclosure proceedings on the basis of just one missed payment is abusive and therefore should be annulled. While the EU Advocate’s ruling is not binding, in most cases it presages the ruling of the Court of Justice of the European Union (CJEU), which is expected to take place in the coming weeks.
If the CJEU does draw the same conclusion, it will mean that many mortgage contracts will have to be annulled, potentially paralyzing thousands of foreclosures. The ruling would fly in the face of a recent ruling by Spain’s bank-friendly Supreme Court that the mortgage contracts containing the clause could be modified to adhere with EU law without having to halt the evictions, as long as there is a minimum of three missed payments.
The CJEU has a history of striking down elements of Spain’s excessively bank-friendly mortgage legislation. In the wake of the last housing collapse, banks in Spain were, by law, able not only to evict mortgage holders after just one missed payment; they could also — and almost always did — saddle ex-homeowners with debts for life following foreclosure. Those debts grew ever larger as additional fees and sky-high default interest stacked up, until, in some cases, they exceeded the amount of the original mortgage.
In 2013 the CJEU ruled that this aspect of mortgage law was “abusive.” It ordered the Spanish government to bring its laws regarding the protection of bank customers in line with those of its EU partners. Yet today, 28 long months later, those changes have still not been made…