Friday, October 17, 2014

Brussels tells Spain cancel abusive mortgage clauses, not modify them

A while ago, the European Court of Justice ruled that many of the clauses normally put into mortgages by Spanish banks were abusive, and thus not enforceable. Instead of respecting this judgment, the Spanish government passed a law that allowed judges to modify these clauses to make them slightly less abusive.

With the current Spanish approach, banks don’t have anything to fear by continuing to put in the maximally abusive language possible, since in the worst case a judge would reduce this to the maximum that would be permitted by law.

Eg,if the mortgage promised to sell your first-born son into slavery if case of default, the judge would say “well, slavery is illegal, but if it was legal and the value of a slave for 40 years was 10,000 euros per year, then you owe 400,000 euros”.

In what seems like a very common sense legal opinion, the attorney general of the European Court of Justice made clear that the Spanish judges have the obligation to cancel abusive mortgage clauses entirely.

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