In a new blow to Spanish banks over mortgage expenses, the Supreme Court has decided that it is the lenders, and not the clients, who must pay a duty as part of the property transaction costs.
In a reversal of its own February decision, the court now says that banks are the ones who must pay the Impuesto sobre Actos Jurídicos Documentados (AJD), a tax paid by the buyer at the time of closing, when a notary officially documents both the sale and the loan.
Banks will balk at returning any amounts that have already been disbursed by clients
Manuel Pardos, Adicae
As a result of the decision, shares in Bankia, CaixaBank, Bankinter, Sabadell, BBVA and Sabadell tumbled in the Spanish stock market on Thursday. The sector is already dealing with the fallout from a previous legal decision on abusive “floor clauses.”
In its October 16 decision, the Supreme Court determined that the bank is the only party with an interest in getting the loan certified by a notary, because this is what will allow the lender to initiate foreclosure proceedings if the borrower defaults on payments. Because the lender is awarded this privilege through the public deed, the lender should pay the fee, said the judges.
Lenders said on Thursday that they will obey the new criteria set by the Supreme Court and pay the AJD fee themselves. But industry sources warned that lenders may simply pass that added cost along to clients through higher interest rates on the loans. A few months ago, when the government threatened the sector with a new banking tax, lenders replied that any added cost would be ultimately borne by clients.
Is it retroactive?
The ruling did not say whether the new rules may be applied retroactively. Legal sources consulted by this newspaper said that banks will have to pay the AJD from now on in all new loans. As for earlier clients, these sources said they felt confident that it should be possible to claim the fee going back four years, as long as tax refunds may be claimed. It is unclear, however, whether the money must be claimed from the bank or from the Spanish Tax Agency.
Manuel Pardos, president of Adicae, an association representing bank clients, believes it is just a matter of days before lenders stop charging this tax on new mortgages. “But they will balk at returning any amounts that have already been disbursed by clients,” he says. Pardos recommends claiming the fee from the bank first, and if this does not work, turning to the courts. Authorities may even try to set up a special arbitration system to prevent an avalanche of lawsuits.
José María Mollinedo, secretary general of the Finance Ministry technicians union Gestha, says that clients who have signed mortgages in the last four years could also try requesting a refund from their regional tax agency to avoid going through the courts. The tax agency would later claim it from the banks.
In February, when the Supreme Court reached the opposite conclusion and said that banks could charge clients the AJD, the analysis firm Kepler Cheuvreux estimated that the sector had avoided as much as €6 billion in potential legal claims from clients.
“We are analyzing the text in detail,” said a spokesperson at one of several banks queried about the ruling. In a joint statement, banks, savings banks and credit cooperatives said that none of them have made any money from this tax, as clients pay through them to the regional governments. The statement added that they have always abided by existing rules “that were approved over 20 years ago.”
Bank sources described the court’s decision as “an unusual correction” and said it was part of “the growing social atmosphere, which is reaching all spheres, contrary to the activity of banks following the crisis.”
Asufin, an association that works for the rights of bank clients, estimates that if the eight million mortgage holders in Spain were to demand the fee back, the litigation could represent €24 billion on the basis of an average AJD fee of €3,000 per loan.
Both Asufin and Facua, a consumer organization, have issued statements supporting the Supreme Court’s newest decision. Asufin has asked the General Council of the Judiciary, Spain’s legal watchdog, as well as the regional governments, to “give resources to the special courts ahead of the flood of expected claims.”
What is the AJD?
The AJD is paid on certain documents that are signed before a notary, such as a mortgage. The amount is a percentage of the loan, and this figure depends on the region of Spain where the home purchase is taking place. This tax is collected by the regional governments, and last year it represented a collective €8 billion in revenues. Some regions apply a 0.5% fee, such as the Basque Country. Others, like Andalusia or Aragón, have set this fee at 1.5%.
However, the tax is not calculated on the amount of the loan itself, but on the mortgage guarantee, which is the sum of the loan amount, interests, late fees and legal expenses in the event of default – a fact that could significantly raise the final figure. The consumer group OCU figures that for a mortgage of €150,000, with a mortgage guarantee of €270,000 and an AJD rate of 1.5%, the fee would mean €4,050. This is on top of other transaction expenses involving the notary, property registrar, property valuation and gestoría.
English version by Susana Urra.