ERVA has compiled a list of known Equity Release Court rulings. The Courts have all found in favour of the victims and ordered the mortgage loans to be removed or have rendered the foreclosure proceedings invalid. In most, the Courts have opted to resolve the dispute by ordering a “restitution of benefits”, which means that each party should be returning what they took under the contract: the bank is made responsible to pay the interest and cover the investment losses, and the borrower is to return the sums paid to them at the outset.

In one case, the Court refused the bank the right to claim back the initial payment.

Some of these cases are under appeal and could be reversed although, we strongly believe it to be unlikely under the the prevailing mood against defrauding banks and bankers for their known misdeeds and mischief.

 

Landsbanki Luxembourg S.A. Vs. Borrowers. 25th April 2015 in Court of First Instance 8 of Marbella

The court invalidates the foreclosure proceedings against the borrowers and terminates the case on grounds that the lender Landsbanki Luxembourg S.A. had grossly failed to file the adequate documentation alongside the foreclosure petition.

As a result, the bank is barred from filing foreclosure proceedings against this borrower for good.

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2 Claimants Vs. Danske Bank International S.A. 31st of March 2015, in Court of First Instance 2 in Benidorm

According to the Court, it is proven that we are before a contract known as “Equity Release”, named as “Home Income Plan” for retired people where the bank grants a loan that it is invested either directly or via a third party, retaining the lender a pledge over the investment, with a view to obtain sufficient income to finance the loan and hopefully, an excess that will supplement the customer’s pension.

The customers only received part of the loan, the balance being kept under control of the bank and later being invested through complex financial products, retaining the lender a pledge.

Court determines the nullity and voidness of an equity release mortgage loan on grounds that the clients had no financial or investment knowledge, professional or commercial experience, investment expertise nor sufficient academic training to understand, not even superficially, the financial product offered by the bank. It was also proven that the clients had not ability to select and validly carry out the investments in financial products as those where the loan was invested.

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2 Claimants Vs. N.M. Rothschild & Sons Ltd. 7th of November 2016

            The Court rejects the allegation by the defendant that this is a simple and ordinary mortgage loan because the loan’s destination is predetermined, from the outset, to be invested in a complex investment fund. It is therefore a complex product that includes, inter alia, a loan that is conditional upon the following: the mortgage, the specifications in respect to the drawdowns and the pledge of the investment fund. It is therefore not possible to separate or demarcate the mortgage loan from the destination to be given to the capital.

The Notary that intervened in the mortgage loan was deposed in Court and he affirmed the complexity of the product.

The Court rules that the product does not adapt to the profile nor needs of the claimants i.e. retired pensioners that do not need to make any investment but resort to signing this contract because of the fear instilled in them of announced spectacular and horrific Inheritance Tax.

Neither claimant required this product at this point in their lives, as they owned unencumbered property with a stable financial situation.

The Court orders the Equity Release contracts null and void and orders restitution of benefits.

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1 Claimant Vs Surrenda Link Mortgage Funding Nº 1 (SLM). 2nd of May 2017 in Court of First Instance 3 in Vera.

The Court determines that the Equity Release mortgage is null and void on grounds that it consisted of a complex product, that the claimants had no previous investment experience, academic education to understand the product they were purchasing nor there was any evidence that the claimants had ever in their life invested in financial products. It is also established that the claimants had not “investors profile”, not even conservative.

As a result, it is ruled that the bank breached the applicable laws in the matter and the equity release mortgage loan is declared void, ordering a mutual restitution of benefits.

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2 Claimants Vs. Landsbanki Luxembourg S.A. 7th of February 2017 in Court of First Instance 4 in Fuengirola.

The Court determines that the product SITRA II (made up of a loan, a mortgage, an investment and a pledge) is a complex financial instrument whose effects depend, largely, on market values of impossible determination in the contracts, which are usually redacted in abstract terminology, and therefore only accessible to experienced people.

According to the ruling, the neither the defendant nor its agent O.M.M. made any attempt to ensure that a) the profile of the claimants was adequate to the product and they understood the complexities nor b) whether the information provided was clear, concise and transparent.

It is also added that at source, the documentation given to the clients was fraudulent at worst, negligent at best, and because of this the equity release is declared null and void, ordering the mortgage loan to be cancelled and the advance payment retained by the claimant in concept of damages.   

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2 Claimants Vs. Landsbanki Luxembourg S.A. 11 of December 2014 in Court of First Instance 8 in Marbella

The Court determines that the equity release mortgage loan documentation given by the bank to the customers does not allow for an understanding of the product. None of the documents includes clear, concise, detailed or relevant information in respect to the functioning of the product or its financial consequences.

The complexity of the product resides in destining a large part of the mortgage loan to sign up a unit linked life insurance product that is made up of an investment fund. The information provided was manifestly insufficient.

The reality is that not even the bank provides a plausible explanation in respect to how does the investment of the loan through financial products work.

Because of these complexities, the bank should have carried out actions to ensure that the client knew exactly the different possible scenarios and consequences.

The Court determines that the bank misrepresented the real complexity of the product and therefore concludes that the client was unable to understand and accept the product validly, for which reason they decide to nullify the mortgage loan, with restitution of benefits.

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2 Claimants Vs Surrenda Link Mortgage Funding Nº 1 (SLM). 29th of October 2014 in Court of First Instance 3 in Torrevieja (Alicante)

The Court determines that the customers were classed as ‘retail’ and that, as a result, they should have been provided extensive and detailed information on different scenarios of investment performance, associated risks, ensuring that the product was suitable and that it was clearly understood by the customer.

The Court nullifies the mortgage loan and orders the lender to pay 40,000 Euros in damages.

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17 Claimants Vs. Surrenda Link Mortgage Funding Nº 1 (SLM).  30 of November in Court of First Instance 11 of Bilbao

Court of First Instance 11 in Bilbao has ruled that twelve mortgage loans valued at 6 million Euros, granted to British families mostly in the Malaga province between 2004 and 2007, should be declared void.

The Court dealt with this case as all loans were granted at a Bilbao Notary Public and the representatives of the lender, SL Mortgage Funding nº1 Limited (SLMF), were also based in the Basque city, according to Lawbird Legal Services S.L.P.

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

Chester-based SL Mortgage Funding nº1 Limited (SLMF) 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 not having any of the above authorizations, SLMF would lend but at the same time retain most of the proceeds of the loan, which would then be invested by them.

The ruling declares that “infringing the protocols set by the relevant administrative authority to supervise the disputed product is a regulatory violation that exceeds that of a mere breach of banking laws, such as misselling, so profusely dealt with recently in relation to the massive sale of complex financial products.”

The Judge held that in this case, the breach of public policy “is far more serious for it makes a mockery of a whole system of financial and banking supervision designed to prevent abuses to consumers and protect the stability of the sector”, and likens this behaviour “civil fraud”, which is any proposal that contravenes mandatory regulations or has a false or forbidden reason.

The sale of this product was conducted via commission-earning financial advisory firms, namely David Driver from OIB, Hamiltons Financial Services and Henry Woods Investment Management, based in Estepona, Marbella and Fuengirola.

SLMF also recommended a network of lawyers that created an appearance of seriousness, downplaying the extent of the lack of licensing requirements of the bank and the product.

According to Lawbird Legal Services S.L.P., for the claimants, the ruling confirms that operating in breach of mandatory banking and financial regulations makes the suspect a “boiler room”, -even if the company was legally operating in their own country- and allows the victims to rid themselves of a nightmare lasting for over 10 years.

The Judge concludes that the nullity and voidness should be made applicable to all contracts and agreements executed between the clients and the bank, applying the laws of contractual termination in odd fashion –albeit most favourable- as clients “will be able to claim what consideration they gave under the contract without having to return was given to them.”