Spain Too Fast to Evict in Mortgage Disputes, EU Court Rules

The European Union’s highest court struck down parts of Spanish mortgage law, saying they lead to unfair evictions of some consumers challenging the terms of their home loans.

National courts must now be allowed to ask for eviction cases to be halted pending separate decisions on whether the underlying loan agreements are illegal, the European Court of Justice in Luxembourg ruled today.

“That applies all the more strongly” in cases where “the mortgage property is the family home of the consumer whose rights have been infringed,” the court said in a statement. The current Spanish system limits consumer protection “to payment of damages and interest and does not make it possible to prevent definitive and irreversible loss of the home.”

The Spanish government has proposed a battery of measures to reduce the burden of defaults and foreclosures amid protests and suicides linked to home seizures as the country deals with the second-highest unemployment rate in the European Union. The economy, in its second recession since 2009, will contract 1.4 percent this year as the unemployment rate rises to 26.3 percent by year-end, according to Moody’s Investors Service.

The current rules were “drawn up many years ago,” Prime Minister Mariano Rajoy told reporters in Brussels today. “There is a Royal decree law before parliament to improve this situation and we’ll endeavour to reconcile that with what the law asks of us.”

Mortgage Terms

Today’s decision may mean that banks have to set more benign mortgage terms for customers in the future because it highlights the current mismatch in the relation they have with clients, Miguel Cordoba, an economics professor at CEU San Pablo University in Madrid, said in an e-mailed statement. It “gives judges reasons to stop evictions so that at least temporarily families can keep living in their main home.”

The ruling was triggered by a case involving Mohamed Aziz, a Spanish resident who was evicted in January 2011 after failing to make payments on a 138,000 euro ($179,000) loan. His bank took enforcement measures and his house was put up for auction. No bids were made and, under the terms of Spanish law, the bank took ownership of the property for 50 percent of its value.

Eviction Process

The local Spanish court where the case is pending sought the EU court’s guidance on whether the national rules are in line with the bloc’s law on unfair terms in consumer contracts.

The ruling “is going in a direction that the commission wished,” Michele Cercone, a European Commission spokesman, told reporters in Brussels today. The EU regulator will contact Spanish authorities to see how they intend to proceed, he said.

While the decision “will allow judges to pause some eviction processes” it “will have a very limited impact for the majority” said Fernando Encinar, co-founder of, Spain’s largest property website.

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