Demystifying Multi-currency Mortgages: Understanding the Toxicity and Lack of Transparency

Magdalena Rico Palao, lawyer specializing in banking law, platform www.eliminarhipotecamultidivisa.es

Multi-currency mortgage: what is it? What is the toxicity of the multi-currency mortgage? Are multi-currency mortgages uninformed nonsense? What documents should they have given you so that it is understood that there is clarity and transparency? All the doubts related to this This issue is resolved in today’s article by lawyer María Magdalena Rico Palao, specialized in consumer law.

What is a multicurrency mortgage?

The multicurrency mortgage is a type of mortgage loan that is paid in several currencies, but almost no one who has it knows how it really works and what the product consists of.

Basically instead of having to return this amount, you will have to return the equivalent in yen or another currency selected at the time of signing, which would be, around another larger or smaller amount depending on the exchange rate.

What is the toxicity of the multicurrency mortgage?

One receives an amount of money in euros that automatically becomes indexed in another currency, causing the amount lent to increase or decrease from that moment on depending on the revaluation or weakening that said currency suffers with respect to the euro; in such a way that the client, at the end of each period, will not only have to return the amount received in euros, but will also have to settle the amount that the evolution of the foreign currency has generated for or against them.

“The ineffectiveness of predisposed mentions that consist of declarations not of will but of knowledge or of establishing certain facts as true, are revealed as formulas predisposed by the professional, empty of real content as they are contradicted by the facts.”

Maria Magdalena Rico Palao, lawyer expert in consumer law.

What should they have informed you about the operation of these mortgages in foreign currency?

The first thing they had to explain were the currency evolution forecasts that they knew and not you.

For example, starting in the last half of 2007, a negative evolution of the currency to which the loan was going to be referenced was expected; The markets were already discounting what was finally a reality; that is, a drastic weakening of the euro against most of the currencies in our environment. But they kept this information so that bank clients would not know the reality.

In this sense, the Supreme Court considers that for a bank loan contract to be classified as transparent, it must include simulations of various scenarios related to the reasonable and foreseeable behavior of the contract and must incorporate clear and understandable prior information on the comparative cost with other loan modalities.

Therefore, in multi-currency transactions, written information should have been given, and not oral, with proof of receipt by the client of the following points:

1. Of the evolution expected by the markets for the currencies to which the loan was going to be indexed.
2. Of the expected evolution of the Euribor.
3. The financial institution could have carried out the required comparative study of the cost that a multi-currency loan could foreseeably and highly likely entail compared to a simple conventional loan in euros referenced to Euribor.

Are multicurrencies uninformed nonsense?

Multicurrency mortgages made no economic sense, nor did they provide any guarantee for the consumer. Any benefit that they could obtain, by reason of paying a lower installment, by being referenced to an interest rate (Libor) that at that time was more favorable, was going to be absorbed by the expected increase in the principal owed, due to the negative evolution, already foreseen by the markets, for the main currencies against the euro.

The Proportionality Rule has not been taken into account, given that in any financial product the benefit must be proportional to the possible loss assumed. In this case, that loss would never be proportional to the possible benefit for all those who have taken out their mortgage in the years 2007 and 2008.

Financial institutions did not warn their clients of the intrinsic risks of contracting multi-currency mortgages, and it is essential that the consumer has all the information about its essential conditions and its associated consequences before entering into a contract.

Regarding the requirement of transparency in the inclusion of the multi-currency clause, the CJEU interprets that said obligation must be understood extensively, to the extent that the clarity and understandability of the clause is not reduced to its grammatical content, but is It is mandatory that the contract transparently expose the specific operation of the conversion mechanism to which the clause refers, as well as the relationship between that mechanism and that prescribed by other clauses relating to the delivery of the loan.

Without written information signed by you (prior to the date of the loan deed), the multi-currency mortgage is null and void.

Can the action expire?

Normally, it is the lawyers of the Banks who maintain such expiration but in reality, the Client is not interested in the declaration of nullity of the entire contract due to lack of consent, but rather partial, its maintenance with the exclusion of certain clauses that affect the determination of the price. Relative nullity is not requested, but radical nullity and according to Art. 1303 Civil Code, neither validation nor expiration can be opposed.

The consequence is that the 4-year expiration period of the voidability action does not apply (unlike swap contracts or the acquisition of financial products), nor is the entire contract annulled.

Is notarial information on the same day of signing sufficient?

The intervention of a Notary is not enough; In the contracting of mortgage loans, the work of the notary who authorizes the operation can be an element to be evaluated, in that he can ensure the transparency of this type of clauses (with all the requirement for clarity in the information he carries with him) and finish complying with the information requirements that underlie the duty of transparency.

Such a statement does not exclude the need for sufficient pre-contractual information that affects the transparency of the clause inserted in the contract that the consumer has decided to sign.

When adequate pre-contractual information has been provided, notarial intervention serves to complement the information received by the consumer about the existence and significance of the floor clause, but it cannot by itself replace the necessary pre-contractual information, which the jurisprudence of the CJEU has considered. fundamental so that the consumer can understand the economic burdens and the legal situation that result for him from the clauses predisposed by the businessman or professional’, Ruling of the First Chamber of the Supreme Court of November 15, 2017, Ruling: 608/2017 Appeal : 2678/2015.

Will the mentions confessing knowledge of “risks” in the mortgage deeds be enough?

Nor is the statement embodied in the deed that the borrowers ‘explicitly assume the exchange risks that may arise during the life of the contract, including the possibility that the equivalent value in EUROS may be higher than the agreed limit.

The ineffectiveness of predisposed mentions that consist of declarations not of will but of knowledge or fixation of certain facts as true, are revealed as formulas predisposed by the professional, empty of real content as they are contradicted by the facts.

What documents should they have given you so that it is understood that there is clarity and transparency?

The binding offer, the prospectus and simulations of unfavorable scenarios.

What is the ideal Profile of the Multicurrency Mortgage subscribers so that the Judge can radically annul it and return the extra money paid?

We must clarify that this product in itself is not void, but rather that the key to the success of this type of claims will lie in the knowledge of the characteristics and risks of the product, as well as in the information provided in this regard by the Bank to its clients. For the claim to have a chance of succeeding, the main criteria are:

• Mortgage on the primary home or second residence.
• Individual subscriber.
• No specific financial training.
• Jobs and stays without links to the banking or financial environment.
• Consumer status.

What is the Extrajudicial request model for the Nullity of the product?

From our office we always recommend that the first action be a Prior Claim that you can request here:

How long does the judicial process take?

In the 1st Instance, it may take approximately one year, but that year becomes two or three if we find a collapsed General Contract Conditions Court.

Can I find out the money that will be returned to me and how my mortgage will be?

Yes, and we also make multi-currency damage calculators for consumers for free.

multi-currency-mortgage-calculator/

You will not need to hire an expert because in our office we have these professionals.