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On 11th September 2019, the Spanish Supreme Court issued a judgment regarding the effects derived from the nullity of early termination clauses of mortgage loans, following the European Court of Justice (ECJ) judgment of 26th March 2019 and proceedings of 3rd July 2019 of the Court of Justice of the European Union (CJEU).
With regard to early termination clauses in mortgage loan contracts, the ECJ ruled in the abovementioned judgment that unfair clauses in consumer contracts cannot be partially preserved by eliminating the part of the contract which makes it unfair, when this means modifying the substance of the content of said part of the contract, and therefore in principle such clauses should be annulled. The problem is that, if said clause is essential to the contract, it would be annulled in its entirety.
The Supreme Court declared in judgment 1331/2007, of 10th December, that “the credit guaranteed with a mortgage (mortgage credit) is not an ordinary credit, since it is subsumed in a mortgage right in rem, and therefore is treated differently, legally speaking”. That is to say, it is not an ordinary loan, but has a special nature since it is intended to reinforce the guarantee granted to the creditor in order to be able to realise his credit through this right in rem. Therefore, if the essential power of the mortgage right is restricted in long-term mortgage loan contracts, which attributes to the creditor the power to force the sale of the object of the mortgage in order to satisfy the amount owed with the price of the sale (art. 1858 Spanish Civil Code), the guarantee becomes distorted, loses its meaning, and therefore, the contract would be deemed null.
If the contract is declared void, the consumer is exposed to harmful consequences, such as the obligation to repay the entire outstanding balance of the loan or the loss of the benefits legally provided for with foreclosure.
In order to avoid these consequences, the ECJ has admitted that the courts substitute or integrate the abusive clause with the legal provision that inspired the early termination clauses, in reference to article 693.2 of the Spanish Civil Procedure Law in its wording of 2013, after the reform operated by law 1/2013. However, the Supreme Court, in the case of consumer loans secured with a mortgage guarantee or whose purpose is the acquisition of real estate property for residential purposes, chooses to take into account the new Law 5/2019, of 15th March, regulating real estate credit contracts, article 24 thereof. This is a mandatory rule, and more beneficial to the consumer, given that it increases the number of unpaid instalments before the creditor may terminate the loan contract. Formerly, just one single unpaid instalment (wording of the aforementioned article 693.2 Spanish Civil Procedure Law before the 2013 reform) or three unpaid instalments (wording given by the 2013 wording) would have been sufficient for termination, now this has increased to twelve or fifteen monthly payments, depending on the case in question and taking into account the clarifications set out in the aforementioned article.
It therefore lies with the national court to evaluate in each individual case the justification for the exercise by the creditor of the option of early termination, taking into account a number of factors: the essential or non-essential nature of the non-fulfilled obligation, the seriousness of the non-fulfilment in relation to the value and duration of the contract and the possibility for the consumer to avoid it.
Finally, with regard to the practical implications of the above, for foreclosure proceedings derived from clauses declared null and void because they are deemed abusive, and where the possession has not yet been handed over to the acquirer, the following guidelines are established:
- Loans declared due prior to the entering into force of Law 1/2013 must be dismissed without further action,
- If they are loans due after the entering into force of this law, the following must be determined:
- if the default of the debtor does not meet the requirements of gravity and proportionality required by case law, taking into account article 24 of the new real estate credit contracts law as the guiding criterion, such loans should also be dismissed.
- if the default of the debtor default is as serious as provided for in the real estate credit contracts law, the proceedings may continue.
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Barcelona, 27th September 2019