Spain’s equity release time bomb

LAST UPDATED: 6 May, 2012 @ 21:17
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Spain’s equity release time bomb

IT is one of those nagging issues that is simply not going to go away.

The so-called ‘equity release scheme’, a highly toxic product devised, marketed and sold by mostly Scandinavian banks to reduce inheritance tax and raise money is going to become a bigger and bigger story over the next few years.

Already covered in the Olive Press over recent months, it has left a number of British and other northern European clients based in Spain facing losing their livelihoods and homes.

The idea of taking capital out of their mortgage-free homes and putting some of it into under-performing investment portfolios to pay back the bank threatens to cripple their health and well-being.

And there is no visible end to it, save for decisive legal action – or a change in the Spanish law as currently the products are not regulated.

Unless there is a nationwide scandal the law is unlikely to change anytime soon. In the meantime, those pensioners caught in the trap are finding it difficult to repay the debt, particularly because the value of the investment portfolios are well below that of the mortgage loan. And many of them face losing their homes.

For once at least, Spanish banks have largely stayed well away from this unique form of lifetime pension or ‘reserve mortgages’, as they are called here.

Perhaps they could see that the concept was little more than an alleged tax fraud. The idea that by mortgaging a home and investing the proceeds in bonds, stocks or life assurance, would mean the beneficiaries of the owner’s will would pay less inheritance tax.

In my opinion this supposedly clever strategy falls foul of Spanish legislation on several points, namely:

1. They are an abuse of law, as by seemingly complying with the laws one pursues an illegal result. From a tax perspective, this happens when a specific action is not backed by economic logic, as would happen with the equity release proposition.

2. The advertising of these products – offering fantastic tax breaks, etc, is illegal

3. These products did not have clearance by financial and insurance regulators

4.?Shoddy banking practices offering highly complex financial products on unintelligible contracts to pensioners who, should be afforded the highest level of protection.

5. The use of unregistered, unqualified and inexperienced agents to market the schemes, which is illegal

Several clients have now decided to set up the Equity Release Victims Association (erva.es) to denounce the banks to the Government.

They hope to get a decision outlawing these schemes as illegal. All of which begs the question, why would hundreds of pensioners with their life-time savings buried in their retirement homes, re-mortgage them to invest the proceeds with a foreign bank, often in a tax haven?

This is no doubt, the result of gross mis-selling and it is my pleasure to be investigating it today.

Contact Antonio at Lawbird Legal Services
Edificio Alfil Floor 4, Ricardo Soriano, 19 – 4B, 29601 Marbella, Malaga (Spain) Phone: +34 952 861890 – [email protected] – www.lawbird.com

9 COMMENTS

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  1. “…the term REVERSE mortgage, or more accurately the financial product known by that name in the US is called equity release in England.”
    According to Which? problems could arise if the circumstances of the borrower changes. Which? have also stated that taking out an equity release plan could affect means tested benefits. They highlight the fact that these type of mortgages, should only be used as a last resort.

    Age Concern have a great information leaflet on home reversion plans/equity release .

    To be approached with great caution I should think.

    P.

  2. The French have a form of deferred sale of a property established in national law that allows a homeowner to sell the freehold of their home, to then live in it for the remained of their life, receiving an initial a cash sum plus a monthly sum thereafter until their death.
    Because this form of sale is established and regulated by law it means the original homeowners have complete security of tenure for the remainder of their lives, as well as a monthly income. Obviously the size initial lump sum and the monthly payment vary by the age and health of the sellers.
    This does seem a far preferable situation to that currently in Spain and the UK where ‘equity release schemes seem to be unregulated and homeowners seem to risk of losing their homes

  3. The French deferred property sale mentioned by Alan where the seller retains the right to remain living until they die is recognized and used in Spain as well. The age of the seller is taken into account by the tax people as to the advantage you can deduct when selling. In Spain it is called usufructo.

  4. Could this be the senior partner of IURA?
    683 REAL DECRETO 2340/2004, de 17 de diciembre, por el
    que se indulta a don Tomás Fernández García.
    Visto el expediente de indulto de don Tomás Fernández García, con los
    informes del Ministerio Fiscal y del tribunal sentenciador, condenado por
    el Juzgado de lo Penal número 9 de Málaga, en sentencia de 17 de noviembre
    de 2000, como autor de un delito de apropiación indebida, a la pena de
    dos
    años de prisión, con las accesorias de suspensión de todo cargo
    público
    y derecho de sufragio durante el tiempo de la condena, por
    hechos
    cometido durante los años 1987 a 1989, a propuesta del Ministro
    de
    Justicia y previa deliberación del Consejo de Ministros en su reunión
    del
    día 17 de diciembre de 2004,
    Vengo en conmutar a don Tomás Fernández García la pena privativa de
    libertad pendiente de cumplimiento por otra de 400 días de multa, que se
    satisfará en cuotas diarias de dos euros, cuyo inicio y forma de cumplimiento
    será determinado por el tribunal sentenciador, a condición de que pague las
    responsabilidades civiles fijadas en la sentencia y no vuelva a cometer delito
    doloso en el plazo de dos años desde la publicación de este real decreto.
    Dado en Madrid, el 17 de diciembre de 2004.
    El Ministro de Justicia,
    JUAN FERNANDO LÓPEZ AGUILAR
    JUAN CARLOS R.

  5. To be clear the type of Equity Release peddled to us by an International bank based in the UK in 2005 was banned in that country in the early 1990’s.It was an absolute con perpetrated at the time when all the banks were running riot.The governor of the Bank of England commented on the fact the banks felt it perfectly acceptable to defraud.

  6. Regarding IURA we paid them €5k years ago after they asked for 9k to take our case.
    Everyone who has paid IURA needs to get together and go after them. I tried via my lawyer but one voice was not enough and the college in Malaga was not interested in sorting out overcharging.Anyone who wants to have a go can contact me as some of the work is already done and paid for.

  7. On the 19th september NORDEA bank are applying to the court in Torrevieja to auction my villa and make me homeless – what a way to finish your life. 3 years ago i had major surgery for cancer,- removed colon rectum etc,-at 70 what next !!!

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