Spain’s Supreme Court quashes borrower’s hopes on refunds for mortgage set up costs

Raymundo Larraín Nesbitt, March, 1. 2018

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
1st of March 2018


Spain’s Supreme Court ruled yesterday 28th of February that Spanish lenders would not have to refund borrower’s Stamp Duty Tax on their Spanish mortgage. This new ruling allows Spanish lenders to dodge a multi-billion euro bullet. This now leaves the door ajar to be appealed before the European Court of Justice.

In a blog post we published well over a year ago (Lender’s to pay for mortgage setup costs – 27th of January 2017) we severely criticized this opportunistic litigation approach as the risks it entailed, in our humble opinion, were perilously close to indulging into reckless litigation that could leave borrowers seriously out-of-pocket on losing their court cases.

We warned yet again in our blog post of 16th March 2017 (Recap of Legal Actions in Spain against Banks & Others) that we personally found “bleak” the success odds of litigating against lenders for the purpose of recovering the set-up mortgage costs (point three). In line with this, our law firm tried to talk clients out of pursuing this litigation course because we did not see the likelihood of this turning out positive.

Fast-forward a year later, and the Supreme Court ruled yesterday against borrowers being refunded Stamp Duty for exactly the same legal reasons we pointed out in our January 2017 blog post. 

Notwithstanding the above, borrowers litigated en masse to recoup Notary fees, Land Registry fees and the Stamp Duty tax. Law courts have been awarding the Notary and Land Registry fees with a mixed bag of results (some rule that 100% should be awarded whereas other regional ones are of the opinion that only 50% should be awarded). This disparity in rulings prompted the Supreme Court to clarify the situation with yesterday’s ruling to settle the matter once and for all and unify Doctrine.

However, the lion’s share of the set-up costs was always the Stamp Duty which accounts for well over 90% of the set-up costs. It was this contentious point that made or break the case.

The Stamp Duty Act, a decades-old law, always made it clear that the taxpayer was the borrower, not the lender, so there was little to no room to manoeuvre. So, for this reason we labelled these legal actions with a “bleak” success outcome as opposed to other litigation options which have proven most successful.

It will be interesting to see what happens with the thousands of cases that were instigated on a no win no fee basis. I suspect that in many cases plaintiffs were not warned by their litigation lawyers that if they lost their case they would likely have to pay for the defendant’s set of legal costs; that is the bank’s lawyer’s fees, court runner's fees besides other lender's costs. More on this: No win no fee: not always a good idea.

Only the ECJ can now turn the tide of events in favour of borrowers…

You can find a press release from the Supreme Court here.


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