Facing uproar, Spain’s Supreme Court will reconsider who pays mortgage tax

Less than 24 hours after news emerged of a Spanish Supreme Court decision to make banks, and not clients, pay a mortgage tax, the tribunal said it will review its decision because of its “enormous economic and social repercussions.”

In an unusual move, Luis María Díez-Picazo, head of the court’s administrative division – which this week ruled against the lenders and in favor of borrowers – has put all appeals on this issue on hold, thereby preventing the new caselaw from taking effect.

Sources in the banking sector expressed “astonishment at the unjustifiable situation created by the Supreme Court”

Over the coming weeks, the 31 judges who make up the division will meet to decide whether banks now really do have to pay the Impuesto sobre Actos Jurídicos Documentados (AJD), a tax paid by the homebuyer at the time of purchase, when a notary officially documents both the sale and the loan.

In a decision made this week by a panel of six judges (one of whom entered a dissenting opinion), 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 allows the lender to initiate foreclosure proceedings if the borrower defaults on payments.

Because the lender is awarded this privilege through the public document, the lender should pay the fee, said the judges. This ruling in itself constituted a reversal of an earlier February decision confirming that clients are responsible for paying this tax.

In a short statement issued Friday, the Supreme Court described the most recent ruling as “a radical shift in the criteria sustained to date” by this very same court, and mentioned “its enormous economic and social repercussions.”

Astonished banks

Sources in the banking sector have expressed “astonishment at the unjustifiable situation created by the Supreme Court.” Several major lenders said that in the meantime they would start paying the AJD fee as early as today. “We are awaiting a definitive decision by the Supreme Court that will clear everything up. We hope it happens as soon as possible. When all this is over, we’ll see who has to pay this fee.”

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. The Supreme Court had not made it clear whether clients should claim the refund from the bank or from their regional tax agency, which could then in turn claim it from the lender.

As a result of this week’s decision, 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.” On Friday, shares began bouncing back just seconds after the Supreme Court announced that it will review its latest decision.

English version by Susana Urra.