Last year, I wrote an article about the polemic floor clause in mortgage loan contracts, a subject that has frequently cropped up in the news and is now a regular mainstay at Spanish Courts of Law. Most readers are now familiar with this concept but for those of you who aren’t, here is a brief explanation:
Some banks place a minimum and maximum interest rate on the mortgage loan so if the official interest rate falls below the rate established in your contract, you would not benefit from it at all and would continue to pay at your minimum rate. The maximum rate was found especially abusive because it was deemed that if we ever reached the ridiculously high interest rates (some contracts state 12%), the world would simply implode!
The debate here is how to remove this abusive floor clause from your mortgage if you were not aware of its existence at the time of signing. There are three steps to follow:
- Approach your local branch speak to the manager. It is unlikely negotiations will go well at this phase but some readers have mentioned surprisingly that the bank has offered to take money off the normal monthly repayment when approached at this stage. Is this evidence they acknowledge their own wrongdoing? Since when do banks “give money away” unless their hand is being forced? If you get this response, it may well be worth pursuing.
- If this initial meeting is not successful, you can put in a written complaint to the bank’s complaints investigator who must respond within 2 months in a legal manner that must outline a valid line of argument. To better your chances of a positive response, it may be a good idea to have a solicitor draft your letter for you to contain two key bullet points upon which to base your claim:
- Lack of transparency
- Lack of reciprocation
- If the response is negative still, you can contact the Banking Ombudsman of the Bank of Spain, charged with resolving this type of dispute. Their response must be issued within 4 months and the final report may be used in court if it determines the floor clause to be abusive, however, some solicitors argue that at this point, initiating legal proceedings guarantees a more successful outcome.
Another term that keeps springing up is the “Binding Offer” or “Oferta Vinculante”. What is this document? The Binding Offer outlines the basic mortgage terms in your contract. The mortgage deed is an extremely extensive document with dozens of pages full of legal and financial jargon as well as equations that boggle even the most intellectual minds and even the bank’s own directors struggle with it. In any case, up until 2007, it was obligatory to sign this document at least 3 days before completion for all new mortgage loans up to 150.253,03€. From 08/12/2007, it become obligatory for ALL MORTGAGE LOANS but the 3-day limit didn’t strictly apply. From 29/07/2012, it was no longer obligatory even though the customer can always request it.
You will find that nearly all banks automatically provide the binding offer in an attempt to show absolute transparency in their dealings, therefore avoiding any type of court action later. However, some solicitors insist that you still have a good case even if this binding offer has been signed. This decision is left in the judge’s hands to determine whether the customer fully understood the agreement beforehand or not. Now, some people who have signed a mortgage loan that stipulates a floor clause were made aware of its implications and agreed to them and actually have no desire to remove it, remembering how interest levels soared especially in 2008 so there are always two sides but if you are one of the unlucky ones who got caught out, you can try following these steps to exercise your legal rights. As always, I recommend you ask for legal advise to gauge your chances before initiating what can be costly proceedings. Good luck!