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Repossessions in Spain

As a result of the current economic difficulties being faced by many property owners in Spain – be they Spanish or foreign – many mortgages are in arrears and record numbers are being foreclosed with properties repossessed.

Please click here for information on Spainwide’s Mortgage Arrears Assistance

Ignoring a mortgage problem is the worst of all worlds

If ever there was a situation when it didn’t pay to ignore a problem it is defaulting on a mortgage debt in Spain. Why?

• Even if you stop paying you still owe the bank – only now even more as interests as well as the bank’s legal fees must be added on.
• If the bank repossesses the property they may sell it at 70% of the rateable value and then pursue you for the remainder.
• If the sale does not attract buyers then the bank may retain the property at 50% of its value and then pursue you for the remainder of the debt.
• The bank can pursue the debt for a period of up to 15 years and have your other assets sold and even have a portion of your salary embargoed to reduce the debt.
• By forcing the bank down the legal route it makes solutions such as dacion en pago more difficult to achieve.

Why Leaving Debts in Spain no longer an option

This right to pursue the defaulting borrower now extends across borders as a result of European Union legislation.

A bank that obtains a judgment against a defaulting debtor in Spain may in certain circumstances enforce that judgment in the national courts of another EU country using a European Enforcement Order.

This is now occuring more and more often as banks in Spain find themselves under financial pressure as a result of the scale of mortgage defaults. Given that the borrower's other assets such as property in their home country may now be at risk adds to the reasons for not ignoring the matter and dealing with situation as soon as possible.

Solutions to Mortgage Arrears

So what realistic solutions are there for someone who finds themselves unable to continue repaying a mortgage in Spain? These are as follows, in order of preference:

Sale of the property

If the property was purchased some time ago and a considerable amount of equity has been built-up then it may well be possible to sell the property. The current market is not the best environment in which to sell, and if it is necessary to achieve a quick sale the property will need to be offered below even the current market price. That said, if the property was purchased a long time ago, it may still be possible to avoid losing any money.

Transfer Property to the Bank

Dacion en pago is a legal process in Spain where the lender (often a bank) agrees with the borrower to accept the property in exchange for wiping out the mortgage debt. Should the bank agree, the borrower will be able to leave Spain with the debt cancelled and with an agreement from the bank that it will not pursue the borrower in any jursidicion to recover any debt. As a result the borrower can relax in the knowledge that there will be no possible legal action in the future that could place any current assets in jeapordy.

This is without debt the preferred option where there is little likelihood of being able to pay the mortgage in the future. The difficulty here is that the lender has to agree to accept the property as satisfying the debt and in the current property market this can be a tall order for those mortgages taken out on property at the peak of the market.

On the other hand if the borrower is returning to another country this will increase the cost for the bank to retrieve the loan. If the amount outstanding on the loan is relatively small (after the bank would resell the property) then it may be in the bank’s interests to accept the property in exchange for the debt.

Therefore as soon as it becomes apparent that it may not be possible to continue paying the instalments on the mortgage and before legal and other charges start to accrue, it is important to speak to the lender to see if they will accept the property as a payment for the loan.

Spainwide offer a full Dacion En Pago service.For more information please click here

Refinancing

This solution is apt for those in a position to continue paying down the mortgage, albeit at a lower rate, for example, if there is a temporary cash flow issue or if seeking tenants to rent-out the property to cover the mortgage longer term. The Spanish banks have been slow to adapt to the commercial reality they face in the current economic crisis. But already several banks are willing to offer an extension of the mortgage term or temporary ‘interest rate only’ periods as they realize that the alternative is more costly.

Spainwide offer a full Negotiation Service. For more information please click here

Declare Bankruptcy

Due to changes in the Spanish law, it is now possible for an individual to declare themselves bankrupt in much the same way as a company. This is a less clear-cut solution to the problems presented by inability to repay a mortgage as the matter must be brought to court and it is for a judge to decide whether the borrower is in fact bankrupt and if so, must make a declaration as to how this should affect the repayment of the mortgage. So, the borrower may be declared ‘illiquid’ and payments on the mortgage may be suspended ‘suspension de pagos’ but this does not rule returning to the matter in the future. It does however stop the interest running on the loan and it is a method by which the loan amount may be negotiated.