European court rules Spanish mortgage law is abusive

From El Pais.

The European Court of Justice on Thursday ruled that Spain’s mortgage law is incompatible with a European directive on abusive practices in consumer contracts, opening the door to more legal protection for households facing eviction from their family home.

The ruling comes in response to a question posed by a Barcelona court in connection with the eviction of Moroccan immigrant Mohammed Aziz from his home in January 2011, after he failed to meet mortgage payments on a 138,000-euro loan granted to him by savings bank CatalunyaCaixa in July 2007.

The court wanted to know if the eviction breached Aziz’s rights. The European Court ruled Thursday that the process of ousting him from his home infringed the European Union’s 1993 Unfair Terms in Consumer Contracts (93/13EEC) directive on consumer protection.

The ruling will apply to all eviction cases currently being processed across Europe but will not apply retroactively, as pressure groups have been calling for. Amendments to the mortgage law, which is more than a century old, are currently going through parliament, and it appeared as if the government was waiting for the Luxembourg-based court’s judgment before proceeding with the passage of the draft law.

One of the anomalies of the current law in Spain is that if a homeowner fails to meet a single monthly mortgage payment, the bank can initiate accelerated proceedings to evict the borrower and take possession of the property. Even if the borrower alleges the contract he has signed is abusive and a court agrees with him, if the eviction has already been carried out the homeowner has the right to compensation but not the right to recover the property. The bank can also ask for full repayment of the loan even after obtaining possession of the property in question.

“The Court […] holds that the Spanish legislation does not comply with the principle of effectiveness, in so far as it makes it impossible, or excessively difficult, in mortgage enforcement proceedings initiated by sellers or suppliers against consumer defendants, to apply the protection that the (93/13EEC) directive confers on those consumers,” the court’s ruling said.

The court also questioned whether Aziz would have willingly signed on equal terms with the bank a contract that included a penalty clause for back payments with an annual default rate of 18.75 percent. “The national court must in particular compare that rate with the statutory interest rate and determine whether it is appropriate for securing the attainment of the objectives pursued in Spain and does not go beyond what is necessary to achieve them,” the court determined.