Mortgagees, statutory remedies and the unfair terms directive

Mortgagees, statutory remedies and the unfair terms directive

Will the recent decision in Barclays Bank SA v Garcia give mortgage lenders and their advisors more confidence that they can enforce their security under English law without interference from the unfair terms directive?

Original news

Barclays Bank SA v Garcia and another, Court of Justice of the European Union (Sixth Chamber): Case C-280/13 [2014] All ER (D) 116 (May)

In proceedings in Palma de Mallorca, Spain, the respondents (mortgagors) objected to the claimant (mortgagee) exercising its rights of sale as mortgagee in possession under Spanish law on the basis that they were inconsistent with Directive 93/13/EEC of 5 April 1993 (the directive). The Spanish court referred the issue to the CJEU. The CJEU held that, unlike contractual terms, the directive did not apply to statutory and regulatory provisions of member states.

What was the background?

The mortgagee received an assignment of a debt owed by the mortgagors, which was subsequently increased. The original loan was for €91,560. The debt was secured by a mortgage over the mortgagors’s dwelling (secured property). The mortgage contained a term providing that, in the event of any auction of the secured property, the reference value of the secured property would be €149,242.80. The loan was increased to €153,049.80.

What was the dispute?

The mortgagors defaulted in the repayment of the loan and the mortgagee demanded payment of €148,142.83 in principal, €1,689.95 in interest and €45,003 in interest and costs. The Spanish court ordered the secured property to be repossessed in December 2010.

In May 2011 the secured property was auctioned but no bidders were present. The secured property was awarded to the mortgagee as dictated by Spanish law at a value of €74,621.40, that is, 50% of the agreed value of the secured property at the time the mortgage was granted.

In October 2012 a further order was made authorising the continuation of the enforcement proceedings against the mortgagors for the balance owing to the mortgagee.

The mortgagors objected to the valuation of the secured property and the continuation of proceedings in accordance with Spanish law on the basis that they were inconsistent with the directive.

The Spanish court referred four questions to the CJEU. The CJEU considered the four questions together by distilling them into one question as follows:

‘...whether Directive 93/13 and the principles of EU law on c

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