The Supreme Court of Spain has finally clarified the consequences of the nullity of the early termination clauses in mortgage loan contracts establishing a series of guidelines for ongoing foreclosure proceedings where the delivery of the possession to the buyer has not taken place yet.
This decision is preceded by the response the CJEU has given to several preliminary rulings posed by the Spanish Supreme Court and some First Instance Courts, through the 26 March 2019 judgment (which has been followed by many posterior judicial rulings). Essentially, the sentence indicated that the Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, does not oppose to the possibility of national judicial bodies resolving the nullity of the unfair term, replacing the content declared unfair with a new drafting of the legal provision that inspired the clause. The purpose of this interpretation, as the Supreme Court acknowledges, is to protect consumers from the harmful consequences of having to return the whole of the loan if the total dismissal of the foreclosure takes place due to a contract termination by the banking institution.
Based on the guidelines established by the CJEU, the Supreme Court, through its Eighth Legal Basis, draws a series of instructions to decide whether the foreclosure will continue or not (if the delivery of the possession has not taken place yet):
- The proceedings in which, before the entry into force of Law 1/2013, loan maturity would have taken place by the application of a contract term declared void. These proceedings should be dismissed without further procedure.
- The proceedings in which, after the entry into force of Law 1/2013 (which established a limit of three unpaid monthly instalments), loan maturity would have taken place by the application of a contract term declared void, and in which the breach of contract by the debtor did not meet the requirements of seriousness and proportionality required by the case law, having the possibility of using the requirements established in Article 24 of Law 5/2019 of 15 March, regulating real estate credit agreements (Law 5/2019), as an interpretative element for the verification of compliance. These proceedings should also be dismissed.
- Instead, the proceedings mentioned above shall continue their processing if the breach of contract by the debtor meets the seriousness requirement established in the Law 5/2019.
Along with the measures stated above, the Supreme Court establishes that the termination that takes place by judicial orders dictated under the circumstances described in sections a. and b. shall not acquire the status of res iudicata. This will allow the creditor to file a new foreclosure, though it will not be based on the early termination of the contract by contractual provision (a foundation that was taken into account in the dismissed proceeding), but in the application of the legal provisions foreseen in the Law 5/2019.
Though it clears away the large quantity of case studies generated by the execution of the early termination clause (which offered a higher degree of legal certainty to the unfinished/pending proceedings), the sentence of 11 September is quite controversial. Essentially, it admits some kind of retrospective application of Article 24 of the Law 5/2019, which is forbidden by its own 1.4 transitional provision, forcing the debtor to initiate a new proceeding respecting the deadlines established in the aforementioned article. Nevertheless, the solution will still be temporary for both consumers and users, who, though they have less risk of the debtor claiming the total amount of the loan due to the termination of the contract, shall still face a second foreclosure not long after the termination of the first one.