On March 16, Act 5/2019, of March 15, regulating real estate credit agreements was published in Spain’s BOE, which entered into force on June 16, 2019.
The purpose of this Law is the transposition of Directive 2014/17/EU of the European Parliament and of the Council, of February 4, 2014, on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010. In addition, in order to regain borrowers’ trust, provisions are introduced with the purpose to enhance legal certainty, transparency and understanding of the contracts and the clauses that compose them, as well as fair balance between the parties.
As the Act’s introduction points out, it regulates three different aspects: (1) rules of transparency and conduct that impose obligations on lenders and credit intermediaries, as well as their designated representatives, completing and improving the current existing framework ; (2) the legal regime of real estate credit intermediaries and real estate lenders; and (3) establishes penalties on breaches of the obligations contained therein. At the same time, a series of provisions are introduced to regulate aspects that are not specifically provided for in European regulations and rather go beyond their content, whose purpose is to strengthen certain aspects of the legal system of mortgage agreements and its contractual life.
The purpose of this Act is to establish certain rules to protect individuals, regardless of whether or not they are consumers, that act as debtors, surety or guarantors of loans that are secured by means of a mortgage or other right of guarantee on real estate residential property or whose purpose is to acquire or retain property rights over land or buildings built or to be built. On the creditor’s side, this Law shall apply to loan agreements granted by individuals or legal entities that perform said activity in a professional manner.
B. BORROWER PROTECTION RULES
The main regulatory changes focus on:
- establishment of principles of action in activities related to granting Real Estate loans;
- basic information that should appear in loan advertising;
- transparency obligations in relation to contracts;
- inclusion of additional costs in the calculation of the Annual Percentage Rate (APR);
- clear and understandable general information that lenders must provide;
- personalized information that is needed to compare loans available in the market, to be provided by lenders in advance, which will never be less than ten calendar days before the borrower is bound by any loan contract or offer;
- lender’s obligation to evaluate the solvency of the potential borrower in depth;
- transparency and obligation to provide the borrower with the following documents:
- the European Standardized Information Sheet (ESIS), which will be considered as a binding offer from the entity during the agreed period until the contract is signed, which must be of at least ten days.
- the Standardized Warning Card (FiAE) in which the borrower or potential borrower will be informed of the existence of relevant clauses or elements in the contract.
- in the case of a variable interest rate loan, a separate document with a specific reference to the periodic installments to be paid by the borrower in different scenarios of interest rate evolution.
- copy of the draft contract, the content of which must conform to the content of the documents referred to before and shall include, in a detailed manner, all the expenses associated with the signing of the loan contract.
- clear and truthful information on the expenses that must be borne by the lender and those that must be borne by the borrower.
- When the borrower is required to get an insurance policy in guarantee of compliance with the obligations of the loan contract, as well as the a property damage policy with respect to the property subject to mortgage, lender must provide in writing the conditions of the insurance required. In this case, the lender must accept alternative policies from all those providers that offer conditions and a level of benefits equivalent to that which he would have proposed, both in the initial subscription and in each of the renewals. The acceptance by the lender of an alternative policy, other than the one proposed by him, may not lead to worsening in the conditions of the loan in any way.
- When it is foreseen that the loan will be formalized in a public deed, lender must warn the borrower of his obligation to receive personalized and free advice from the notary chosen by him for the authorization of the public deed of the loan contract.
These documents together with the statement signed by the borrower in which he declares that he has received them and that their contents have been explained to him must also be sent to the notary chosen by the borrower.
With respect to expenses, it is legally determined for them to be distributed as follows:
- Appraisal expenses of the property shall be borne by the borrower and the administrative agency by the lender.
- Lender will bear the cost of the notary fees of the mortgage loan deed and those of the copies will be assumed by the person requesting them.
- Land registry registration expenses will be borne to the lender.
- Payment of property transfer tax and documented legal acts tax shall be borne in accordance with the provisions of applicable tax regulations.
- If there is a mortgage origination commission payable by the borrower, it will be accrued only once and will cover all fees related to the loan’s analysis, processing or approval.
C. BORROWER PROTECTION RULES (II): RIGHTS AND WARRANTY PERIODS
- Term of at least 10 calendar days: to be counted from the delivery and signature of the documentation prepared by the lender (ESIS, FiAE, etc.) and until the loan deed is to be signed.
- Within the period stipulated in the previous point, the borrower must appear before the notary chosen by him in order to obtain the mandatory advice. The notary will verify the documents legally required from the lender and, in the event that requirements are met, it will be recorded in a notarial certificate prior to the formalization of the mortgage loan. Borrower must appear before the notary so that he can draft the aforementioned certificate as late as the day prior to the authorization of the public deed of the loan contract.
If fulfillment of lender’s obligations to deliver the documents in time and form is not properly documented or the borrower does not appear to receive the advice of the notary within the indicated period, the notary will reflect this circumstance and the deed will not be able to be executed as public deed.
The provisions of the Act and those contained in its regulations are mandatory, not available for negotiation between the contracting parties unless the rule expressly states otherwise. Therefore, acts carried out against its provisions will be null and void, in accordance with section 6 of Spain’s Civil Code, particularly any prior waiver of rights granted to the borrower, surety, guarantor or non-debtor mortgagee by this Act.