The Law 5/219 of real estate credit contracts (LCCI), Also known as the mortgage law and which came into effect on June 16, 2019, it establishes that Notaries have to make sure that whoever asks for a mortgage (in this case natural persons who are consumers; not entrepreneurs) knows what they are going to sign and that the financial institution has explained all the conditions in detail. “It is obliged to do it,” he emphasizes Ramón Blesa, member of the board of directors of the Notarial Association of Andalusia for Malaga. It is about preventing consumers from signing something, which is going to bind them financially for a large part of their lives, without knowing very well what they are committing to and the consequences of that decision, as happened in the financial crisis of 2008 and which led to claims for bad practices, for example, with preferred shares, floor clauses or multi-currency mortgages.
This law, “which marks a before and after in the defense of the mortgage debtor,” emphasizes the notary, arrives five years late and after the EU in its judgment of March 14, 2013 said that Spanish legislation violated community regulations because it did not guarantee sufficient protection to citizens against mortgages with abusive clauses. Hence, it entrusts the notaries with the checks that are necessary so that the elevation of the credit to a public deed is the end of a process governed by transparency and that in the future no one can challenge alleging ignorance. “The courts never said that the notaries did not explain the deeds, but they did record that the reading of the loan conditions on the same day as the signing of the mortgage sale was insufficient. They warned that the client should have had prior information and had a sufficient period of time to reflect and assimilate all the data, “says Blesa.
Therefore, to protect the consumer, notaries now have to ensure that there is transparency in information and legal certainty. They have to make sure that the customer has been informed by the bank of the FEIN (European Standard Information Sheet), It contains all the loan details and is binding on the bank. And what does it include? The general conditions of the loan, such as the interest rate, the duration of the mortgage, the number of payments, the amount of each installment, the commissions (for example, for early repayment, either partial or total), the consequences of a non-payment and bonuses that the client has taken advantage of, such as, for example, that the contracting of insurance or direct debit of a payroll reduces the differential. “However, it must be very clear that none of these latter products are required to be signed with the bank. Only the indication of an account where to charge the monthly fee and that the property is insured against possible damages can only be linked to the granting and approval of the loan, ”emphasizes Blesa.
Knowledge of the clauses
In addition to the FEIN, the documentation must also include the FIAE (Standardized Warning Sheet), which are the most relevant clauses and conditions, such as the consequences of an increase in the Euribor (in the case of a variable mortgage) or the possibility that the bank activates the so-called ‘early maturity clause’ , which is when the entity gives up the loan after the non-payment of several installments by the client. Blesa explains that before Law 1/2013 he could give up the loan and execute the mortgage due to non-payment of a fee; After the entry into force of said law it was necessary to have stopped paying at least 3 installments, and with the LCCI it will be executed with the non-payment of 3% of the borrowed capital or 12 installments during the first half of the term and also in the case of not having paid 7% of the borrowed capital or 15 installments during the second half.
However, the expert warns that most banks have a code of good practice, which is applied to the habitual residence and is foreseen for people who are in the «exclusion threshold». “They give a five-year moratorium and very low interest. If after these years, the debt persists, the dation in payment is considered, if the value of the home is equal to or greater than the debt and is accompanied by a rental of the same home under very favorable conditions, ”emphasizes Blesa.
The documentation delivered to the client is completed with the draft mortgage loan agreement; the distribution of mortgage expenses, “Where the client will only have to pay the property appraisal expenses”; a document that warns the client of the obligation to receive free advice from the notary who freely chooses before signing, and in the case of variable mortgages, another document that summarizes the periodic fees to pay in different scenarios interest rate evolution. That is, examples of how much you would pay per month if the Euribor were at 2%, at 3%, at 4% … In this sense, Blesa assures that the new law prohibits establishing the controversial floor clauses, that so many issues judicial have raised.
“The client has to respond with all his assets in the repayment of the loan and not only with the mortgaged property”
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In this pre-contractual phase, which is the main novelty of the new mortgage law, the bank has to deliver the documentation to the client ten days in advance (it is called a ‘reflection period’), during which the mortgage deed cannot be signed. “Moreover, the day of delivery or the day of signature does not count in the computation, so from the time the applicant receives the documentation until it is signed, in practice 12 days have to elapse,” the expert clarifies.
Equally, the financial institution has to send all the documentation to the notary through an approved telematics platform. Once received, the notary will have to summon the client to go to the notary’s office to sign the transparency act, a free document, which must be formalized at least one day before the mortgage, without the presence of any representative of the bank and, in addition, it is a prerequisite and essential to formalize the deed.
In that meeting alone with the notary, which can last between 30 or 45 minutes, he has to verify that the bank has delivered to the client all the documentation associated with the loan and that it has done so within the established period. In that meeting, explain and resolve any questions. «Mainly, they ask what they have to pay each month, the interest rate and what they must subscribe with the bank (life insurance, etc.), although What they are most surprised with is when I emphasize that they have to respond with all their assets in the repayment of the loan and not only with the mortgaged property. Many think that if they stop paying, the bank takes the house and that’s it. They do not realize that they could also have to respond with their payroll and other income, “warns the notary.
Finally, a customer test and also to the guarantors, if any, of about ten questions and with affirmative or negative answers, for example, if you have received all the documentation (it is listed), if you have had it for ten days, if the financial institution has explained the documentation to you before going to the notary, if it informed you that you were free to choose a notary, if you know if your loan is at fixed or variable interest, if you know the amount and number of installments, if you know that you can change banks (creditor subrogation) or if you are aware that in case of late payment, the entity financial institution may charge you late payment interest.
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