The Supreme Court of Spain has upheld the illegality of 12 mortgage loans valued at six million euros, granted to British families mostly in Malaga province between 2004 and 2007, and orders land registries to cancel all mortgage records.

The case was dealt originally by a Court of First Instance in Bilbao -and later the Appeal Court in the same city- as all loans were granted at a local notary, and the representatives of the lender, SL Mortgage Funding nº1 Limited (SLMF), were also based in the Basque city, according to Lawbird Legal Services SLP.

These loans were sold to attain a reduction in potential inheritance tax, as mortgages would reduce the taxable value of the property, but also -in some cases- to supplement the modest pensions received by the owners of the properties.

SL Mortgage Funding nº1 Limited (SLMF), based in Chester (UK), had not applied for the necessary regulatory permits to legally raise funds from the public and provide an investment service – activities reserved and regulated by the Bank of Spain and the CNMV (financial regulator).  Despite this, SLMF would lend but at the same time retain most of the proceeds of the loan, which would then be invested in speculative products with The Premiere Group, in the Isle of Man.

According to the lawyer Luis Gonzalez of Lawbird Legal Services SLP, working on behalf of the claimants, the ruling confirms that operating in breach of mandatory banking and financial regulations makes the offender a ‘boiler room’, even if the company was legally operating in its own country. It also allows the victims to “end the nightmare” which has blighted them and their families for the best party of 15 years.

The Supreme Court establishes another important factual point: that SLM was indeed an investment services’ company because “the combination of a loan and its application to an investment fund is a financial instrument of those listed on article 2 of the Stock Exchange Act”, being immaterial if claimants had or not sued related investment companies since who really managed the fund was SLM, and those investment companies were nothing but agents acting for and on behalf of SLM.

Finally, the Supreme Court determines that SLM operated as a Collective Investment Fund since they a) raised funds from the public, b) invested those funds in an investment scheme and c) subjected the distribution of profits to the outcome of the fund.

The sale of this product was conducted via commission-earning financial advisory firms (Hamiltons Financial Services, Henry Woods Investment Management, and others), based in Estepona, Marbella and Fuengirola. SLMF also recommended a network of lawyers which would downplay the extent of the lack of licensing requirements of the bank and the product.

The Spanish Supreme Court has the ultimate appellate jurisdiction over all cases in Spain. This means that the dismissal of the appeal is the end of the process to have the “SITIRS” product reviewed judicially; the only exception to this rule is a very restrictive appeal to the Constitutional Tribunal in the event that the appellant could prove violation of fundamental rights and freedoms, a very unlikely scenario in a case involving a bank.