Contrary to European Union Law is the Spanish legislation that prevents a judge (who has the authority to declare a clause in a mortgage contract abusive) from suspending foreclosure proceedings initiated by other means. This ruling occurred on March 14 by the European Court of Justice in case C-415/11.
As stated in the Platform of Those Affected by a Mortgage (Plataforma de Afectados por la Hipoteca), foreclosure proceedings in progress should halt officially and immediately because the regulating legislation is illegal. The judgment gives important powers to judges in existing proceedings. The declaration that the procedure is illegal opens wide avenues for alleging the invalidity of the procedures that have been in the process thus far.
The European Court Doctrine
The system of protection found in Directive 93/13/CEE regarding abusive clauses focuses on the presumption that the consumer is in a vulnerable situation compared to the professional, who makes the consumer adhere to the contents of the contract written entirely by the professional.
Thus, the Directive expressly prescribes that abusive clauses are not binding on consumers, and it does this to replace the formal balance that the contract establishes regarding the parties’ rights and obligations with a real balance that can re-establish equality between the parties.
The imbalance that exists between the consumer and the professional can only be balanced through positive intervention foreign to the parties of the contract. Therefore, the national judge must, on his or her own, review the abusive character of the clauses that lacked negotiation, and in this manner, correct the imbalance that exists between the consumer and the professional.
The judgment of the European Court of Justice
In its judgment in case C-415/11, the European Court of Justice first stated that the Directive on abusive clauses opposes Spanish national legislation. This is because of the Spanish Law in question, which does not permit the judge hearing the declarative process (the purpose of which is to declare a mortgage contract clause abusive) to adopt preventive measures, particularly the suspension of the foreclosure proceeding when it is necessary to guarantee the full effect of the judge’s final decision.
The European Court of Justice began by noting that in the absence of any harmony in national mandatory mechanisms of foreclosure, the admitted grounds for opposing a foreclosure proceeding and the powers conferred to judges that hear declarative proceedings form part of the domestic legal system of the Member States. However, this legislation cannot be less favourable than those that govern similar domestic situations (equivalence principle) and must not make it impossible in practice or excessively difficult to exercise the rights that the European Union confers to consumers (effectiveness principle).
On the effectiveness principle, the European Court of Justice found that the Spanish legal system undermined the effectiveness of the protection that the Directive guarantees. This applies in cases in which property forecloses before a judge hearing the declarative process can declare a clause of a mortgage contract abusive and, as a result, the invalidity of the foreclosure proceeding. In effect, given that the judge presiding over the declarative proceeding cannot suspend the foreclosure proceeding, this invalidity declaration only guarantees the consumer’s protection through later compensation.
This compensation is incomplete and insufficient, and it does not constitute an adequate and effective measure to prevent the use of these clauses. This is justified, as in this case, where the mortgaged property is the consumer and his or her family’s home, this protection mechanism limited to the payment of compensation for damages does not prevent the definitive and irreversible loss of a home. Therefore, the simple initiating of foreclosure proceedings by professionals deprives consumers of the protection that the Directive guarantees.
As a result, the European Court of Justice declared that the Spanish legislation did not adhere to the effectiveness principle because the Spanish legislation makes it impossible or excessively difficult in foreclosure proceedings, which professionals initiate and in which consumers are defendants, to apply the protection the Directive confers to consumers.
Second, to examine an abusive clause, the European Court of Justice noted that when an agreement between the parties regarding the clause does not exist, the significant imbalance the abusive clause creates requires analysis by considering applicable national legislation. It is also relevant to examine the consumer’s legal system from the view of the available measures under the national legislation of the consumer’s legal system to prevent the use of abusive clauses. To determine whether actions contrary to the requirement of good faith cause the imbalance, it is essential to verify if the professional could reasonably believe, treating the consumer fairly and equitably, that the consumer would accept this type of clause under individual negotiation.
In light of these criteria, the national court must verify if the default interest clause included in the signed contract is abusive. The clause established an automatic annual late interest rate of 18,75% accrued on the unpaid amounts due, without the need for a formal complaint. In particular, the court must compare this interest rate with the statutory interest rate; verify that it is adequate to guarantee the aims of default interest rates in Spain; and verify that it does not go beyond what is necessary to achieve them.
Additionally, the clause relating to the early termination of the contract in question permits the bank to declare the total loan due after only one failure on the obligation to pay the principal or interest. The national court must determine in particular if this power depends on whether the consumer failed to comply with one of the essential obligations of the contract and whether the failure is sufficiently serious regarding the duration and amount of the loan.
Lastly, the clause relating to the unilateral settlement of the defaulted debt of the contract stipulates that the bank may directly present the settlement of the amount to start the foreclosure proceeding. The national court must determine whether and to what extent this clause allows or makes difficult the consumer’s access to the courts and ability to exercise his or her rights of defence considering the procedural measures available.
For additional information regarding foreclosure procedures in Spain,
