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The law on measures to reinforce protection of mortgagors, debt restructuring and social rent has been published

05/14/2013
Commentaries

Law 1/2013 on measures to reinforce protection of mortgagors, debt restructuring and social rent was published in the Official State Gazette on May 15, 2013.

Law 1/2013 is a continuation of the measures established in Royal Decree-Law 6/2012, of March 9, 2012, on urgent measures to protect mortgage debtors with no means of support (“RDL 6/2012”) –see Updates Corporate 11/2012–, and in Royal Decree-Law 27/2012, of November 15, 2012, on urgent measures to reinforce protection of mortgagors (“RDL 27/2012”) –see Updates Litigation and Arbitration 5/2012–, bearing in mind the exceptional circumstances currently being experienced in Spain due to the economic and financial crisis, as a result of which large numbers of those who took out mortgages to buy their principal residence are having extreme trouble meeting their mortgage payments.

Against this backdrop, the new law aims to complete and reinforce the legislation providing protection to mortgagors and essentially adopts four kinds of measures:

(i) A two-year moratorium on evictions of mortgagors especially at risk of social exclusion, already envisaged in RDL 27/2012.

(ii) Reforms to the mortgage market, through amendments to mortgage legislation: late-payment interest on mortgages created on principal residences has been limited to three times the statutory interest rate; the compounding of late-payment interest has been banned; late-payment interest must be last in line for the allocation of foreclosure proceeds, where they are insufficient to meet the secured debt in full; the provisions on nonjudicial sales of mortgaged property have been strengthened; notaries have been allowed to place a moratorium on such sales if the parties have applied for a ruling by the courts as to whether the clauses of the mortgage agreement might be abusive (following the judgment of the Court of Justice of the European Union dated March 14, 2013 (see our Alert of the same date); and the independence of appraisal companies from credit institutions has been reinforced.

(iii) Civil Procedure Law 1/2000 has been amended, to provide sufficient protection for the rights and interests of mortgagors and expedite and give flexibility to the foreclosure proceeding: judges have been granted the power to discern, at their own initiative or at the request of the interested party, the existence of abusive clauses in the enforceable ownership instrument (following the judgment referred to above of the Court of Justice of the European Union); it makes it possible to remit part of the outstanding debt in the monetary foreclosure proceeding following the foreclosure of a mortgage on a principal residence; the debtor has been allowed to benefit from a future increase in value of the foreclosed property; it has been established that the appraisal value in an auction cannot be lower than 75% of the appraisal value that was used when the mortgage loan was granted; the percentage at which the property (principal residence) will be awarded if there are no bidders at auction has been raised to 70% of the starting price; the period afforded to the successful bidder to deposit the price at which the property is awarded has been extended from 20 to 40 days; the amount secured by the guarantee needed to take part in the auction has been lowered from 20% to 5% of the appraisal value; and the borrower must have defaulted on three payments to trigger early maturity of debts payable in installments secured by mortgages.

(iv) RDL 6/2012 has been amended, both with respect to its scope of application and the characteristics of the measures that may be adopted. Law 1/2013 also reiterates the mandate for the government (also given in RDL 27/2012) to drive, in conjunction with the financial industry, the creation of a social housing program, designed to help those who have been evicted from their principal residence because they have defaulted on their mortgage loan.

In general, the law came into force on the date of its publication in the Official State Gazette.

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