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.

Nykredit and Landsbanki, desperate to avoid Spanish judges examining their corrupted mortgage loans -sold as benign “equity release” tax-avoiding legal instruments- have seen their motions to relocate the cases to friendly Danish and Luxembourg Courts totally rejected.

Court number 2 in Marbella denied relief to Nykredit Realkredit on the basis that all contractual documents were signed in Marbella, despite the bank resorting to the classic cheat clause confirming key contracts were all fictitiously signed in Denmark (when clients had never been there before). But clumsily too, the bank had inserted a clause in the mortgage contracts signed before a Spanish Notary with an express submission to Spanish Courts.

For its part, Landsbanki classic but doomed strategy of attempting to have notoriously biased Luxembourg judges deal with Equity Release cases was equally ejected, citing a 2014 Malaga Appeal Court ruling that meticulously examines the financial transaction and deems Spanish Courts as the only ones competent to resolve the dispute.

Acting lawyers Juan Martínez Soler from Lawbird Legal Services, acting vs. Landsbanki, and Victor Bazaga Ceballos and Roberto Lopez, from Bazagalegal, acting vs. Nykredit, expressed their satisfaction at the correct and just rulings.

On September 23^rd, the First Instance Courts No 2 in Novelda (Alicante) pronounced a sentence whereby a false equity release scheme, signed up by an octogenarian British couple in 2007,  was rendered void ordering Caixabank to refund the full capital value of the product.

The plaintiffs´ lawyers, Antonio Flores and Juan Martinez Soler, from Lawbird Legal Services, a Marbella based law firm, argued in their claim that the cause of the contract was false, in the sense that product consisted in the provision of a loan to retired expatriates residing in Spain as if it were an indispensable requirement to avoid Spanish inheritance tax.

In addition, the judge considers there is sufficient evidence to demonstrate that the bank never paid most of the loan capital, but retained it to invest it at the borrower’s risk on complex and highly speculative products, without the latter knowing.

Additionally, the sentence resolves that there is no recorded evidence that the bank truthfully reported the borrowers about the true nature of the product or the compliance of the banking and financial transparency regulations.

On declarations to this paper, Juan Martinez Soler concludes that the pronouncement reveals that “The cause of the product is radically false, as in accordance with the Spanish tax regulations concerning Inheritance Tax, payment cannot be avoided by mortgaging a previously owned property”. For its party, Antonio Flores adds that “the dishonest trick advertised by the bank in this case, becomes void pursuant to the Civil Code, for advertising a financial package leading to a clear fraudulent purpose”.