Supreme Court’s criteria on the subjection to the AJD (Actos Jurídicos Documentados) (stamp duty) of the release of co-debtors from a mortgage loan

Written on 29 Sep 2020

The Supreme Court established in its Judgment of 20 May 2020 (STS 521/2020) the criteria for submission to the AJD of the public deeds of release of co-debtors of a mortgage loan upon as a result of a re-distribution of the mortgage secured amounts.

The AJD is applicable to the public deeds and notarial acts of mortgage-backed loans whose object is an amount or a thing that can be assessed, which are registerable in any public registry and are not subject to inheritance and gift tax (impuesto de sucesiones y donaciones) or tax on onerous property transfers (impuesto de transmisiones patrimoniales onerosas). Thus, in the case resolved by Supreme Court Resolution 521/2020, the Administration of the Valencian Community carried out the liquidation of the AJD on a public deed for the release of co-debtors of a loan secured by a mortgage over certain properties, on the understanding that the taxable event of the AJD had occurred as a result of a new distribution of the mortgage secured amounts as a result of the novation of the debtors.

The liquidation was appealed on the grounds that "such release - of the co-debtors - is a merely novation, that does not produce a new distribution of the mortgage liability, since it continues to fall on the same properties", that is to say, that the novation has a merely obligatory character and, therefore, that it would not be subject to the AJD.

The Supreme Court resolved confirmed the criterion of the High Court of Justice of the Valencian Community, subjecting the deed of release of co-debtors of a mortgage loan to the AJD, arguing that "although the mortgage security on the property is not altered, there is a novation of the obligors, that has access to the registry, and that although it may have its cause in the extinction of the condominium, releasing those affected by the extinction from the liability of the mortgage–backed loan ( specifying their liability exclusively in the properties of which after the extinction they are awarded), they are benefited by such release".

With this argument, the debate on the true object of taxation of the AJD is once again opened, with the Supreme Court opting to follow the more formalist thesis according to which the object of taxation of the AJD is the document (the public deed) and not so much the novation or amendment of the content of the mortgage, which ultimately means that any novation of a mortgage-backed loan in which the character of registrability concurs has valuable content per se.

This is a surprising resolution, as well as confusing in its wording, since the novation of the borrower of a loan has a contractual nature, not a real (in rem) one, and, of course, does not modify (nor does it redistribute) the mortgage liability of the encumbrance on the mortgaged property.

We must disagree with this interpretation made by the Supreme Court, which has direct effects on refinancing transactions, divorces and inheritances, making the operations more expensive (since

the taxable person is the beneficiary of the guarantee). We also question whether the Supreme Court would maintain this criterion in the event that the mortgagor was not an obligor (but just a security provider) and a co-debtor (not the security provider) was released. If the answer is no, this would show the lack of uniformity in the criterion now adopted by the Supreme Court.

Pending the possibility that the Supreme Court could change the criterion following a logical rather than a literal interpretation of the law where what is valuable should not refer to the document but to the modifications that are proposed in it, the alternative (when the case in fact allows it) would be the granting of mortgage loan releases through deeds (pólizas) instead of public deeds.