Bank accused of 'unjust enrichment' in landmark mortgage ruling


Following court rulings in Spain, where the handing over of  mortgaged property was deemed sufficient repayment of the loan, Espirito Santo Investment Bank has lost a landmark case in Portalegre on the same point of law.

Espírito Santo Investment Bank, believes that the decision of the Court of Portalegre, on the liquidation of a housing loan by the delivery of the property to the bank, will have "at this time, a limited impact Portuguese banks.” They wish, as this ruling could end the fundamental unfairness of the Portuguese system.

 The Court in Portalegre decided that the return of a property to the bank, is sufficent payment to  cover the entire loan that was used to buy the property in the first place.

In Spain, the banks won subsequent appeals in Navarra and Cadiz, where it had been ruled that the handing back of a house was enough to settle the loan.

The Portalegre case is the first time that a Portuguese court has accepted that the delivery of home purchased through a loan is sufficient to pay off the full amount of the loan in default. The case relates to a loan made in 2006 for €117,500. When the clients could no longer afford to service the loan, the bank ‘acquired’ the property for the minimum required by law, in this case for 70% of the loan, or €82,250.

The bank still expected the clients to repay the balance and believes that this amount still due. Until the decision of Portalegre, customers were forced to come up with the balance or face court proceedings to recover the balance which, as they had been unable to afford the repayments, in many cases leads with certainty to bankruptcy.

The court's impressive decision states that there is "unjust enrichment" in this operation because, as the loan was granted with the sole purpose of financing the property, by handing back the property the debt is extinguished.


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