Supreme Court rules on scope of mortgage liability

In this respect, ‘mortgage liability’ refers to the maximum amount for which a property is liable in the event of foreclosure.

Article 114 of the Mortgage Act provides that a mortgage which secures an interest-accruing loan cannot secure, to the detriment of a third party, more than the interest accrued during the previous two years. However, it also states that a mortgage that secures interest for more than five years cannot be agreed under any circumstances.

According to the Supreme Court, this maximum mortgage coverage applies to all legal effects – regardless of whether these are favourable or adverse – and to agreements between:

• mortgagees and mortgagors; and
• mortgagors and third-party acquirers.

Background

On 2 February 1995 Unicaja granted a mortgage loan for €45,081, which was secured by a property registered with the Fuengirola Land Registry. The mortgage guaranteed part of the principal, as well as the agreed interest for four years, for a total of €44,628.93.

As payments on the loan were incomplete, Unicaja initiated enforcement proceedings against both the borrowers and the guarantors. As a consequence of these proceedings, an enforcement order was issued for €46,448.48, corresponding to the principal and €21,035.42 to cover interest and legal costs. Further, the mortgaged property was seized.

On 21 October 2002 Unicaja assigned the receivable to Mr Teodulfo and Ms Bibiana (the assignees) for €87,936.50. Subsequently, the assignees – as legal successors of Unicaja – requested that the seized property be sold at public auction. On 20 January 2005 the public auction took place. Costasuel, SL was awarded the property and took on all liens and encumbrances in this regard,
including the mortgage.