I'd take a look at your fan, I think there is something wrong with it. Most fans don't draw more than 10 amps usually, so you've got problems. You should be using a relay on that fan though, and just using the switch to trigger the relay. A fan is an inductive load, and a relay has bigger contacts and is much more suited to switching that type of load than a dash mount switch is.
Check the fan, check the grounds, check everything.. I'm guessing the switch and the spade terminals are causing too much resistance through it, which dissipates power as heat. That is probably using the wire as a heatsink, which is why the wire is hot. There could be corrosion somewhere too..

There should be no reason you need a 12 gauge wire for fans, 12 gauge is rated for 40-50 amps for lengths less than 10 feet. 14 ga is rated 30-40, so you shouldn't need anything that big either. I use 18 ga for our racecar, and that's overkill. Our fan draws 6 amps..