Friday, 30 June 2017

"Sorry, we can't help you": AG Wahl to referring court in Case C-598/15 on mortgage enforcement procedure

This case is one of the latest in a string of cases relating to Spanish mortgage enforcement procedure (see previously e.g. Aziz, Sánchez Morcillo and, more recently, Banco Primus). In preliminary references to the CJEU, Spanish courts have been questioning the compatibility of their national legislation with, in particular, Directive 93/13/EEC on unfair terms in consumer contracts. The present case, Banco Santander v. Sánchez López (C-598/15), concerns the extrajudicial enforcement of a mortgage before a notary, followed by a simplified procedure in order to evict the consumer-debtor from her home. There were several potential problems from the perspective of effective consumer protection, including:
- a clause in the mortgage agreement allowing for extrajudicial enforcement and empowering the bank to represent the mortgage debtor at the signature of the public deed of sale;
- the fact that the immovable property had been sold (to the bank, or so it appears) for only 59.7% of the attributed value, leaving the debtor with a significant debt;
- the fact that the public deed of sale, transferring the property, was drawn up without the participation of the debtor;
- the absence of judicial control, except in the simplified procedure for eviction when review of the terms of the mortgage agreement was no longer possible.

The procedural regime at issue enables the bank to swiftly enforce the mortgage, while the referring court seems to have had doubts whether the rights of consumers are sufficiently protected in light of the Directive.

AG Wahl: "I am perplexed"...
Yesterday, Advocate General Wahl presented his Opinion. He observes that he is "perplexed by the wording of the referred questions" (para. 35). His answer to these questions can be summarised as: "sorry, we can't help you". In his view, the present case must be distinguished from previous cases on the basis that, in short, this case is not - or rather: no longer - about the enforcement of a mortgage agreement. Instead, it concerns a property right ("right in rem"), which is not based on a contract but on the extrajudicial recognition of that right. The transfer of the property had already taken place; the contract supposedly containing an unfair term was extinguished, together with the mortgage itself. Therefore, Directive 93/13/EEC is not applicable.

A 'Catch-22'?
The purpose of the simplified procedure brought before the referring court is to recognise and give effect to a property right entered in the land register. The court could only verify the bank's property right with a view to the exercise of that right, resulting in eviction of the debtor. This presents the referring court with a 'Catch-22': the term alleged to be unfair is the very term which ultimately led to the contract and the mortgage being extinguished. Thus, the mortgage agreement between the consumer-debtor and the bank does no longer exist and its terms cannot be assessed by the court.

If the referring court can neither assess the mortgage agreement nor - according to AG Wahl - question the procedural regime at issue, then who can? Probably not the notary, who is not a "court of tribunal" that can make a preliminary reference to the CJEU (cf. Margarit Panicello regarding the position of the Secretario Judicial). The notary can apparently warn consumers of the existence of unfair terms or give them an opportunity to lodge a claim in separate legal proceedings (see question 4 of the referring court). In ERSTE Bank Hungary, the CJEU has deemed it sufficient that consumers were able to bring the matter before a court that could then provide interim relief. In the present case, the consumer could also oppose the enforcement or seek a suspension (Opinion of AG Wahl, para. 70). However, one could question whether this is indeed an effective remedy, because it places the burden entirely on the consumer (cf. the Opinion of AG Kokott in Margarit Panicello). Thus, there is a risk that the matter never comes before a court at all, until it is "too late".

The relevant question here is whether the interpretation of EU law that is sought by the referring court "bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer" (Aziz, para. 35). Unlike Mr. Aziz, Ms. Sánchez López had had - technically speaking - the opportunity to contest the terms in the mortgage agreement. The referring court lacked jurisdiction to determine the unfairness of those terms. However, the problem seems to be that cases like this might never come before a court, exactly because the existence of a term allowing for extrajudicial enforcement and the transfer of property in the absence of the consumer-debtor.

In the interest of the consumer...?
Later on in his Opinion, AG Wahl draws attention to some circumstances of the case that possibly explain the "inertia" on the part of Ms. Sánchez López herself. The bank allowed her to remain on the premises as a tenant. It would not necessarily be in her interest to challenge the definitive transfer of the property right. In the words of AG Wahl, "effective consumer protection includes the option not to exercise consumer rights" (para. 80). It might be true that invalidity of the mortgage agreement and annulment of the property transfer would endanger the social tenancy agreement subsequently concluded between the bank and Ms. Sánchez López. But was Ms. Sánchez López, who still owes a significant residual debt to the bank (as far as we know), actually aware of her rights? Has she ever appeared before the notary at all? Is the whole course of events and the current arrangement truly in her interest? Such an argument is less convincing. In this respect, it is telling that AG Wahl also refers to the principle of legal certainty and the security of acquired property rights (para. 77), where the conclusion that the case does not fall within the scope of Directive 93/13/EEC would have sufficed. This, as well as his earlier astonishment at the referred questions, suggests that AG Wahl does not really see any problem with the procedural regime at issue, even if the Directive would be applicable. 


  1. Excellent summary.

    The spanish debt-enforcement regime portrayed by this and other cases mentioned such as Aziz etc. seems to be very similar to the corresponding regime in Iceland, where there is an "extra-judicial procedure" to enforce the mortgage and the debtor is generally not allowed access to courts until after the foreclosure on his property has been executed. This mismatch has repeatedly been brought to the attention of Icelandic authorities but so far they have not reacted. Perhaps there is a "case" there to be followed up on?