Litigation & ADR annual report
New laws favour debtors
Courts are doing more to alleviate the troubles of debtors, the result of which has been that, with
the real estate market in decline, banks own a lot of property with little value
A number of legislative changes have
been brought into effect in Spain that
favour debtors, according to Araoz
& Rueda partner Eduardo de León.
However, while recent changes in the
law are aimed at helping to alleviate
the ongoing economic crisis – as well
as the plight of Spanish debtors – it
remains to be seen how effective
they will be, he adds. “The issue of
residential property foreclosure is
a very real and human concern in
Spain,” says de León.
One of the main implications of the
changes to the law, is the possibility
of challenging the existence of “an
abusive clause in a former mortgage
agreement”. Other possible minor
consequences of the changes could
be a cap on the late payment interest
rate, as well as measures to reduce
reducing the “outstanding debtor’s
liability after the enforcement of the
mortgage”.
The decline of the real estate
market has meant that banks have
ended up with a considerable amount
of real estate in their possession,
with much of it of little value to
them. De León references voluntary
codes of practice introduced in
2012 to encourage Spanish banks to
restructure the debt, write off part of
the debt, and even accept payment in
kind in cases of foreclosure.
Court victory for debtors
Subsequent to this in 2013, debtors
scored a victory over Spanish banks
following a ruling by the European
Court of Justice of 14 March, 2013
(C-415/11). In the Aziz case, which
has allowed the domestic courts
to delay the eviction of those who
have fallen behind with mortgage
payments, according to de León.
The decision allows the courts a
lot of leeway in cases where harsh
restrictions are found to exist in
a mortgage agreement. Spanish
legislation was subsequently
amended in order to incorporate this
ruling.
In May 2013, Law 1/2013 added a
number of provisions that increase
the powers of the Spanish courts,
and aim to alleviate the burden put
on debtors. So, for example, the late
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payment interest rate has been capped
at three times the statutory rate.
In addition, the prior legal position,
which established unlimited liability
on the debtor in the case of foreclosure
proceedings has been amended so
that if the creditor has secured 75 per
cent of the debt within five years from
enforcement, the borrower is free of
any obligations.
Mortgage foreclosures increase
Eduardo de León
De León notes that the net effect of all
these changes has been that the courts
have been playing an increasingly
important role in the protection of
debtors.
In the first three months of 2014
the overall number of mortgage
foreclosures in Spain had actually
increased (rising by almost 20 per
cent on the same period in the
previous year) but the enforcement on
residential homes has decreased by
24.4 per cent. Spanish banks have as
a consequence had a large amount of
unwanted real estate on their hands.
From banks’ perspective the situation
is “less than ideal”, comments de
León. Not least due to the costs
associated with foreclosure, as well
as the pressure to shift foreclosed
properties from their balance sheets.
Challenging enforcement
Meanwhile, company insolvency
procedures are now more “debtorfriendly”, following Law 17/2014,
which modifies parts of the Spanish
insolvency law, Araoz & Rueda
associate, Andrés Mochales, adds. “In
pre-insolvency scenarios, enforcement
proceedings can now be challenged
if the company can prove that the
assets in question are ‘necessary’ to the
running of the company,” he says.
A recent study by Axesor found
that there was a decrease of more
than 30 per cent in the number of
companies filing for bankruptcy in
2015, compared to the previous year.
However, de León notes that the
long-term practical implications of
these legislative changes remain
uncertain. “These new laws are very
recent, and as yet untested. There has
not been any practical application of
them by the courts.”
January / February 2015 • IBERIAN LAWYER • 45