One of the modifications established by the new law on the Mortgage Contracts (Contratos de Credito Inmobiliario) passed on June 16, 2019 based on the 2014/17/UE European Directive, that was looking to restore borrowers´ confidence in the banking system, was the obligation to sign a previous deed or act in front of a public Notary stating the conditions agreed with the Bank for the mortgage. When signing that document, the Notary will detail and explain those conditions to the purchaser of the property.
That Notarial Act to be signed before the signature of the mortgage deed, also called Transparency Act, is a notarial document that guarantees that everyone subscribing a loan with a mortgage guarantee has received all legal documentation and information to understand the extent of the liabilities he/she is assuming. The goal is to enhance legal certainty, the transparency and the understanding of the legal contracts and their clauses associated with the signing of a mortgage loan.
In practical terms, this means that, in addition to the information that the bank can and must provide, it will be the Notary who, at least 10 days prior to the signing of the mortgage, not only informs but also ensures that the information provided has been understood and that all the documentation required by law has been received.
The main concerns faced by future borrowers, that the signature of a Transparency Act will clarify, usually revolve around the interests, both ordinary and late payment, especially if they are fixed or variable, and if so, the index to which they are referenced. In relation to the variable interests, the Notary is obliged to make different calculations or simulations of what may happen. Doubts also arise in relation to the different types of commissions (early repayment, non-payment of instalments...), and in relation to the importance of the appraisal value in the event of an auction and when and how this can take place.
** Given that each case is different and being this text just a simple touch on the issue, we recommend consulting your lawyer regarding the contents of this article.