On 15 May, took effect Act 1/2013 of 14 May on measures to reinforce the protection of mortgage debtors, debt restructuring and social rental housing (the “Act”), which was published that same day in the Official Gazette of the Spanish State.
As we have been able to following during its high-profile legislative process, the Act has ultimately failed to include the proposals of the popular initiative that sought to regulate dation in payment and the suspension of evictions, as well as the amendments presented by the various parliamentary opposition groups.
As established in the preamble itself of the Act, its approval responds to the need to reinforce the scope of protection for the numerous debtors who, as a result of the current economic and financial crisis affecting our country, are experiencing difficulties in meeting the obligations assumed in the mortgages subscribed for the acquisition of their primary residences.
We will have to wait a few months to verify whether the measures adopted are the ones actually required at present or, to the contrary, other measures will need to supplement the Act and take it a step further, in order to mitigate the serious effects that the crisis is having on our society.
Among the main novelties introduced by the Act, structured into four chapters, the following are worthy of emphasis:
In the first place, Chapter I approves a 2-year suspension for the eviction of families at a special risk of exclusion, limited to those cases in which the primary residence of the debtor has been awarded to the creditor, or to the person acting on behalf thereof, along with a series of financial circumstances that must take place.
Nevertheless, pursuant to the requirements envisaged in the Act itself, everything appears to indicate that the suspension of the evictions on these grounds could be limited in scope.
Chapter II of the Act introduces a series of improvements in the mortgage market, by means of the amendment, among others, of the Mortgage Act and the Mortgage Market Regulation, among which we emphasize the following:
- The deed for establishment of a mortgage on a dwelling should indicate the nature, primary or otherwise, sought to be given to the dwelling being mortgaged.
- Any default interest on the loans or credits for the acquisition of the primary residence secured by the mortgage may not be greater than three times the legal monetary interest rate, and may solely accrue on the principal pending of payment. The capitalization of default interest is likewise prohibited.
- The system for the extrajudicial sale of mortgaged assets is reinforced envisaging, among others, that the value of the dwelling serving as the rate in the auction may not be less than 75% of the appraised value that served for the granting of the loan; that the sale will take place in one sole electronic auction or that the Notary may perform an ex officio evaluation of the existence of abusive clauses, informing the parties to this respect, and likewise being entitled to suspend the extrajudicial sale when either of the parties accredits having brought the abusive nature of such contractual clauses before the competent judge.
- The independence of appraisal companies before credit entities is likewise reinforced.
- The protection of the mortgaged debtor is strengthened in the marketing of those mortgages subscribed with individual lenders, and in which the mortgage is on a dwelling or used to acquire or preserve property rights to land or buildings constructed or to be constructed. Specifically, if such loans include restrictions to the variability of the interest rate, of the rate of ceiling or floor clauses, require the contracting of interest rate hedging instruments or are granted in one or several currencies, it will be necessary for the public deed to include, together with the signature of the borrower, a handwritten indication in which he states that he has been appropriately warned of the risks thereof.
Chapter III of the Act introduces a series of improvements in the procedure for mortgage foreclosure, by means of the amendment of the Spanish Civil Procedure Act, among which we emphasize the following:
- Judges are authorized to perform an ex officio evaluation of the existence of abusive clauses in the enforceable title.
- In the event of the foreclosure of the primary residence, the amount of the procedural costs for which the debtor is responsible is reduced to 5% of the quantity claimed in the action for foreclosure.
- The possibility of cancelling part of the remaining debt is established if any is pending of payment following the foreclosure of the mortgage and award of the primary residence, providing that certain payment obligations are fulfilled. Specifically, if the judgment debtor is capable of paying either 65% of the remaining debt in 5 years or 80% in 10 years, increased exclusively by the legal monetary interest, he will be released from the rest of the debt.
- In the event of an auction without any bidder, it is established that the creditor may request the award of the nonprimary residence of the debtor for 50% of the opening value of the auction or of the quantity owed for all concepts. If it is the primary residence of the debtor, the Act increases such percentage to 70% of the opening auction value or, if the quantity owed is less than such percentage, sets it at 60%.
- It is established that the entirety of the debt may only be claimed if there has been a breach in the payment of three monthly installments or a number of installments that entails a breach of a period equivalent to three months, and providing that this has been so recorded in the deed.
- A series of measures are introduced to facilitate the access of bidders to auctions, lowering the requirements for bidding, such as the reduction of the bond necessary for bidding, from 20% to 5% of the appraisal value, or doubling the period of time for the winning bidder to pay the price of the award.
Chapter IV establishes a series of amendments to Royal Decree-Act 6/2012, 9 March, on urgent measures for the protection of mortgage debtors without resources, broadening its scope of operation to mortgage guarantors with respect to their primary residences, and introducing other amendments relative to the characteristics of the measures that may be adopted, while maintaining the freedom of adherence to the Code of Good Practices by financial entities.
Lastly, it should be mention that the Act is completed with a series of additional as well as transitional provisions relative to procedures underway and mortgages established prior to its entry into force. Among the additional provisions, worthy of emphasis is the authorization for the Government to promote, along with the financial sector, the establishment of a Social Housing Fund property of credit entities, aimed at offering coverage to those persons who have been evicted from their primary residence for failure to pay the mortgage.