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By Sarah White and Blanca RodrÃguez
MADRID (Reuters) - Spain will make it slightly easier for homeowners to fight eviction after Europe's highest court ruled that the country's mortgage laws were too hard on borrowers struggling to pay, dealing a blow to the country's banks.
Faced with a deep recession and soaring unemployment, Spaniards have grown increasingly angry at how easily they can lose their home if they run into trouble, especially after some troubled lenders had to be bailed out by the state.
But the banks themselves have opposed a loosening of the strict rules.
They argue these have helped keep mortgage default rates in Spain at very low levels despite the economic crisis, and fear big changes would make it harder for them to raise much needed funds backed by mortgages.
The government said on Thursday it would incorporate the ruling of the European Court of Justice into a new law that is currently being debated in parliament.
"We commit ourselves to revise all aspects of the law that have been declared in breach of the European legislation," Justice Minister Alberto Ruiz-Gallardon said on Thursday.
In Spain a person is held liable for a mortgage loan even after returning a home and can only be freed when it is repaid.
The current rules make it very difficult for homeowners to contest evictions.
People cannot halt the process while they try to contest abusive clauses in their mortgage contracts, meaning that even if they eventually win a case against a lender, they may not be able to recover their home.
The European court, in response to the case of a Moroccan national working in Spain who was evicted, decreed that Spanish judges should be allowed to halt evictions when homeowners contest abusive clauses.
Parts of contracts can be found to contain unreasonable terms, such as clauses demanding a sharp increase in interest rates on remaining debt if the borrower falls behind in payments.
This small loosening of the rules - a victory for campaigners - could now bog banks down in many months of legal disputes with homeowners before they can evict them for falling behind on mortgage payments.
"Very little will change. There are some clauses that allow someone to contest an eviction and this simply adds another," said Jose Garcia Montalvo, economic professor at the Universitat Pompeu Fabra (UPF).
"In practice, if people start looking for abusive clauses more, this could make the eviction process lengthier and less efficient, and more costly (for banks)."
Foreclosures have risen sharply in the past few years and a series of suicides of people who had recently been evicted from their homes have contributed to public anger over the strict mortgage rules.
But one growing line of campaign against Spain's mortgage laws - the demand that debt be cancelled once homes are returned to banks - was ruled out by the government.
Spain's Prime Minister Mariano Rajoy said in parliament on Wednesday he was against such a rule because it would only make mortgages more expensive.
(Editing by Toby Chopra)
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