On June 16, the Law regulating Real Estate Credit Contracts came into force. This regulation, which is based on EU law, must be transposed into the national laws of the member states. The new rule, which modifies the Mortgage Law and many other legal bodies, has a protective character of consumer rights. It seeks to improve transparency in mortgage contracts. Taking up several pronouncements of the E.U. Court of Justice on this matter. This law applies to contracts signed since its entry into force (16 June 2019).
From our Legal Consulting Department we summarize the most relevant aspects of this law.
Scope of the Real Estate Credit Contracts Law
The rule applies to loan/credit contracts granted by persons whose professional activity is or includes the granting of loans. The borrower being a natural person and provided that the contract is included in one of the following two modalities:
- Loan/credit contract with mortgage guarantee (or other real right of guarantee) on a property for residential use. Including homes, storerooms and garages, among others, regardless of the purpose of the loan. This modality includes individual borrowers, both individuals and professionals (self-employed).
- Loan/credit contract the purpose of which is to acquire or retain property rights over land or buildings constructed or to be constructed, for residential use. This modality includes individual borrowers, but excludes professionals (self-employed).
It establishes certain obligations, to achieve:
- Provide sufficient information to the borrower, so that he understands the burden he is assuming with the loan. The norm establishes the obligatory documentation to be delivered. The lender must provide the necessary personalized information, at least ten days before the signing date, using the SIGNO notarial platform.
- Impartial advice from the notary prior to signing. Above all by means of the “transparency act”, which is formalised in a prior and obligatory appointment between the notary and the borrower. The prior granting of this document is obligatory for the signature and registration of the corresponding loan deed.
- Limit advice (defined as a personalised recommendation to the borrower regarding the underwriting of loans) in the area of loans. It can only be provided by professional lenders and intermediaries who are required to meet certain requirements. Among them, indicate whether and from whom they receive remuneration for the advisory service.
Obligations of the lender with regard to the evaluation of the borrower’s solvency
- In-depth evaluation of borrower and guarantor solvency (analysis of income/expenses, assets, savings, etc.).
- Consult the borrower’s credit history.
- Carry out the appraisal of the property provided as a guarantee by means of an approved appraiser.
Granting of public deed of loan
The Real Estate Credit Contracts Act includes a series of novelties when it comes to formalising the loan:
- Imperative regime on interest on arrears, early maturity due to non-payment and early repayment.
- The inalienable nature of the rights recognised for the borrower/mortgage holder is established.
- Unsecured mortgage loan contracts that fall within the scope of the LCCI must be granted on paper or another durable medium.
- The notary must send the borrower a simple copy of the deed via e-mail.
Apportionment of expenses and payment of taxes
The distribution of the expenses generated by the formalization of the loan is regulated, which will be assumed in the following manner:
- Notary expenses: assumed by the lender, except copies in favor of the borrower.
- Registration fees: assumed by the lender.
- Agency expenses: assumed by the lender.
- Valuation costs: assumed by the borrower.
The lender is also the liable party for the Documentary Legal Acts Tax (confirming the regulation that had already been applied since 2018).
The lender may exercise its right to terminate the contract early, for non-payment, when the following requirements are met:
- When the borrower defaults on the payment of principal or interest.
- If the amount of installments due must be at least:
- 3% of the principal or 12 monthly instalments in the first half of the loan.
- 7% of the principal or 15 monthly instalments in the second half of the loan.
- That the borrower has required payment at least one month in advance.
Clauses establishing a lower limit on the interest rate are definitively prohibited. From 2013 allowed by handwritten acceptance by the borrower, which option is repealed.
It establishes the consumer’s right to convert a foreign currency loan into the currency in which he receives his income. Or in that of the member state of the E.U. in which he resides.