Cannot Keep Up Repayments on your Spanish Mortgage? Not All is Lost
November 9th, 2008
Revisited 20-11-2008
Being unable to keep up the mortgage repayments is indeed a difficult situation for many and the topic is now becoming an all too often familiar situation. Keeping up the repayments is the best way to avoid problems but since this is not always possible below are some recommendations I would use when dealing with your Spanish bank:
- Be frank to the person in the bank you deal with and tell them about your problems, which are incidentally shared by thousands of persons. The branch manager (with whom almost invariably you will be now dealing with and from whom you should not expect much help), will either try to a) make you feel guilty about the situation and say that the ball is in your court and that they cannot help you further and b) scare you out of all proportion by making you think that if they foreclose you will be chased around the world for this debt, now and in future, which is probably not true as they will keep the property and forget about you if there’s not a substantial nagative equity on the property. However, some banks use credit-search sites which they can link to other site within the EU, something which may have an adverse effect on your credit history back home.
- Always answer the telephone if they are chasing you, even if it is to reassure them that you cannot pay (going silent is a bad sign and who knows, perhaps they have good news to communicate as we found out once). Branch managers are accountable to regional managers in respect of difficult cases and so they will show more willingness to help if they can contact us for updates.
- Propose your lender an interest only payment for a minimum of 2 years. This will see your repayment greatly reduced.
- Propose your lender that interest rates are revised every quarter as opposed to every 12 months. Bear in mind that rates in the EU zone are going down and it is very likely that by mid next year the Euribor should be in the 2% mark, according to many analysts (if they can still be trusted!). As an example, a €200,000 mortgage repayable in 25 years and it´s rate to be calculated in December could be reduced by €120 per month and up to €300 per month by mid next year.
- Combine the above with a rental, even if it is below the market. On a property worth €200,000 you should be able to get a minimum of €6,000, around €500 per month.
- It is now (time of writing) a great time to think of switching your mortgage to a multicurrency loan with the Yen as the main currency, given that the interest rates are very low (1%) and the Yen at one of the highest exchange rates in the last years in respect to most western currencies (EUR, GBP). This means that if it goes down you will end up paying a smaller installment and will owe much less. Not all banks offer this type of loans but it is worth considering as a €1,000 loan would go down to around €500. However, be advised that this can be risky; if the Yen goes further up, you might end up having to pay more for your mortgage. You could also consider USD, Swiss Francs or even GB pounds sterling, which will see your exchange rate risk eliminated (although the rate is still not favourable to the pound).
- Some banks will accept listening to a refinancing plan which is basically adding the unpaid balance to the principal of your loan and increasing your payments slightly to cover the extra amount.
- If the bank is not willing to help, then coldly ask them when is it a good time to come to see them as you want to hand them over the keys to the property, the deeds and the utility bills. Of course this will not discharge you from the obligation of paying the debt but you will see a change of attitude in them immediately and will listen to proposals more attentively.
- If realistically there is no possibility to continue paying and the lender is totally inflexible (which is bound to happen if you are behind by more than 3 payments) it is then crucial that an agreement is struck with the bank where they keep the property in payment of the debt. This is called ‘dacion en pago’ and it basically consists on formally handing over the deed to your home to your lender who agrees to release you from your mortgage. A lawyer may be required for this but it is certainly a good way to spend that last bit of money so that one’s name is not published on a debtors list in Spain (and in some cases like with the CAM bank, also published in other countries, including the UK).
Again, always remember that banks are not real estate agents nor wish to be and so foreclosing and repossessing is and should be the very last option for the bank.
Hi Antonio
I have tried finding banks that are offering YEN mortgages, but nobody seems to be doing it at the moment – do you know which banks are still lending in YEN ?
Many thanks
Hello Chris,
Many banks have withdrawn these lending facilities given the volatility of the markets and currencies, in particular the Yen, which has paradoxically gone so strong against European currencies that it is a perfect time to apply for one (as it will almost certainly devalue in the short term and so will, consequently, the repayments and outstanding capital). I suggest you use a broker for this, I can recommend IMS mortgages ( http://www.international-mortgages.org)
Hi
If one was to hand keys back and then stay in Spain and rent something, possibly from a friend, what would the situation be, would they be chased for the shortfall if there was one?
Hi Carol, it would not be possible for a bank to know that you were renting something as rentals are not registered officially with any Government office or registry, so as long as you dont keep money in a bank there will be no problem. Of course, if you cancel the debt with the property then you will have no more problems but if not you have to avoid leaving funds in bank accounts or owning other real estate in Spain.
Hi
If you hand the keys back to the bank and rent a property as Carol suggests what if you are a legal worker here in Spain. Can the banks find you through your tax and social security payments? What if the debt is higher than the value of the property. Are you liable for the difference?
Hello Mary,
It is easy for a bank to find out if you have a job as they just need to apply to the Social Security Office for this information (via the Courts, obviously). Once this is done they can request the Courts to place an embargo on a portion of the salary, depending on how many times over the minimum approved wage is the montly payment received by the debtor. The bank is therefore free to pursue a debtor for the difference if the property, once sold via auction, does not cover the difference and this is the reason for which we always strongly recommend clients to try to agree with the bank on a transfer of property against debt accord (“dacion en pago”, in Spanish).
I have a mortgage with Banco Valencia. I also have two accounts one to pay my mortgage and
the other to pay my other bills. My mortgage payments have been running one month behind
but this month the bank took 100 euors from my billing account towards mortgage fees
without asking. Are they allowed to do this? Are they allowed to take money from an account
with another bank? We have spoken with our bank and they are not very helpful. They say
that if we make any changes to the mortgage it has to go back to the notary and we have to
pay about 2000 euros in fees. Is this correct? Please can you advise me. Many thanks
The bank can certainly take funds from one account to try to square up the other one and this is why we recommend to have an account either opened in the name of a family member, where the direct debits are to be taken from, or have it opened in a different bank.
With respect to changing the mortgage from a capital repayment one to an interest only this procedure can never cost 2000 Euros as there is not tax involved. I suspect that the people at the bank are trying to discourage you from proposing changes as the cost of changing is no more than a few hundred Euros.
Thanks for you reply, re rentals with regard to dacion de pago, can we ask for this or do they have to suggest it? Our bank are being really unhelpful and phone everyday asking us to pay in money that we just dont have, when we say we are paying all we can they are just rude, and say, you must pay, we cannot pay anymore and are now 1 month behind we would just like to walk away but are not sure if its possible please help
Hello Carol,
I suggest that you now tell the bank that you cannot pay mortgage instalments any longer and that you would like to speak to the manager to agree on transferring the property to them in payment of the debt. Depending on how much loan that property has you may be able to sell it to investors that regularly knock on banks´doors. Try these 2 things. Where is the property located?
Hello Antonio
The property is in Pedreguer, it is a modern spanish townhouse, 5 years old.
Antonio,
I have a Mortgage (interest only) with bancaja will they be able to chase me for any outstanding money if i sign the property over to them and can they affect my credit history in the UK?
Gavin, if you transfer ownership to them in payment of the debt you will not have any further liabilities as the bank´s debt will be fully satisfied. A different thing is if the property does not achieve a high enough price at auction they could decide to secure the debt with other assets.
Hi Antonio, after a serious illness I have been unable to pay my spanish mortgage. I am now back at work and can pay my arrears (five months) in instalments and my mortgage. I have tried to phone the bank in Bancacja and let them know but this is just a waste of time. After reading this website it seems the only option is to hand the keys back to the bank of Bancaja. Is there any other options? Thanks for your time.
Hello Jessica,
If Bancaja directors knew that you wanted to pay they would certainly help you, it may well be that you are dealing with the wrong person. Handling the keys back requires signing a deed of transfer of property against debt and this has to be done through the Notary Public and once the bank has accepted. Try once again and let me know how you get on.
Antonio,
I spoke to my brach manager and he said no ther is no possibility of “dacion en pago” because in my mortgage there is a risk insurance? and that they granted 80% with insurance because the maximum for non resident was 70%. I’m not sure what he is saying, he never mentioned anything about a risk insurance when we took the mortgage out, only a life insurance for for the first year which had to be taken out with our bank (bancaja).
Would i be correct in assuming his position will be to try and get me to conform to the banks terms and not my desired terms (i.e. handing back the keys) and will try and be less than truthful if he thinks i’m not wise to the spanish laws etc.
Regards Gavin
Antonio
I can’t believe your forum…it is amazing and truly unique! I am going to tell everyone about it.
My question I lost my business in Ireland and went behind in my mortgage, credit card and term loan x 3 months but I sold the house and paid all arrears to date on Monday out of the deposit. The buyer banks in the same bank and in addition to paying off arrears asked them to transfer €30,000 to my Irish account on the same day.
I received an email today telling me that not only had they not made the transfer but had instead lodged it my account and now their “head office” are insisting I pay the balance on the credit cards in full @€10k. what can I do. I also found out they charged 25% interest on each mortgage payment in arrears and when I asked baou the fall in euribor they said it is only adjusted June and december but when I pursued it they said it was suddenly reduced now from March by a few hundred!! Thank you for this amazing service.
Hello Christine,
It is difficult to establish if the bank acted appropriately without seeing the mortgage deed conditions but I can say that banks will automatically debit your account if there are any outstanding payments although they cannot withhold the funds if the credit card payment is not yet due and you must expose this and demand inmediate payment.
With regards to the 25% interest on the arrears this is a typical clause inserted on mortgage loan contracts although it is high.
With respect to the interest revision on the mortgage your appears to be done every 6 months but banks tend to take, for the purpose of calculation of the rates, the average rate on the last three months.
Finally, thanks for your comments about the service, I hope you have found it of interest.
Hi Antonio
Would it be possible to transfer a spanish mortgage on a property into different names? i.e taking over the payments of the mortgage and the ownership?
Thanks, great Blog BTW
Hi Antonio,
Great site! Very much appreciated for us British owners looking to hand the keys back. I’m at the Dacion en Pago. The bank have stated they would relinquish debt and I wouldn’t be pursued. The property to my knowledge would have a negative equity to the tune of about 60k Euros. Why would they do this? I’m skeptical they won’t try and chase me back to the UK………
Also they state looking at ‘financial and personal information’ so as to enable it to assess the financial situation as being suitable for it to accept the return of the property. What does that actually involve?
Hola Antonio
I have a property in tenerife mortgaged with banca march. My mortgage payments have increased lots since the exchange rate has declined. My property has gone down in value. I m now considering handing back the key to the bank, but not sure how I stand as I have another property in main land spain with a uk mortgage lender. Can banca march find out I have another property and put debt onto it.
Hope you can Help! thanks.
Dear Neil,
Your lender can easily find any property you may hold in Spain or elsewhere such as the UK or in the Republic of Ireland. We are hired everyday to search for individuals’ and companys’ assets located within Spain on behalf of creditors.
Handing back the keys to a bank should always be the last resort in lieu of being repossessed. The problem with a repossession is that you can easily slip into negative equity post repossession. The lender would then chase you for the outstanding balance in despite of you having already lost the property to them.
Please read my article on the Dación en Pago Explained and why people follow this option: http://www.marbella-lawyers.com/articles/showArticle/spanish-mortgage-dacion-en-pago-handing-keys-bank
If you are confident you’ve already tried everything (interest only, extended mortgage repayments, debt consolidation…)and you are certain you are going to be unable to continue servicing your mortgage repayments in the future, then it’s worthwhile to follow a dación en pago. This will avoid being held personally liable with all your assets, both now and in the future, for the outstanding debt after a repossession procedure. The mortgage debt will be fully discharged and you will make a clean break without being hounded by lawyers or debt collection companies chasing you in the UK or elsewhere.
We can represent you legally on this matter. Contact us.
Lawbid Legal Services
Please can someone advise. For several months we have been trying to re-negotiate our mortgage deal with the CAM bank as we can’t sell our Spanish property and the monthly payments have increased so much because of the exchange rate. They keep saying they want to help us, e.g. interest only mortgage for 2 years. However, all the solutions they offer incur lots of additional cost (at least 10,000 euro to pay their commissions etc.) tp be paid either up front or added to the original loan, and that we must also but their compulsary life insurance of 2.400 per year. Basically they are lowering our costs for a period of 2 years, but increasing the amount we will owe on the mortgage a lot and making us buy very expensive insurance. I can’t see any benefit to the options they are offering and by increasing the borrowing we need to sell the house for even more to pay off the mortgage debt. Their solutions are just a very short term fix. I have lost all confidence in the branch. I keep asking for them to consider a dacion en pago but they keep putting me off and offering me more solutions which are not suitable. We have been trying to find a solution for months now and we are getting nowhere and feeling very stressed by the situation. How can I formally insist that the bank consider the dacion en pago? The original loan we had was for 60% of the property valuation which was done in December 2004. I suspect they are stalling on the dacion en pago as they over valued the property to start with and would find it hard to justify the value has fallen so much if a new valuation came in very low. Thanks
I am looking to buy a 2 bed property on the coast (alicante way) If anyone has a place they are willing to sell please contact me.
Hi
I would also like to know if it is possible to transfer a mortgage and ownership to a different name. My father is considering handing the keys back to the bank, but I would like to take over the payment of the mortgage, but I would want ownership as well.
Or are there any non-resident mortgages where you do not have to pay a huge deposit?
You can take over ownership of the property for the value of the property and this way you don’t need to prove that any payments has gone to your father. Simultaneously you can take over the existing mortgage for which you would have to have applied previously.
If the bank refused to discharge your father from the mortgage and sign with you as a sole debtor you can still transfer ownership of the property. After 3 months of paying I the mortgage installments you will be deemed to be the new debtor, so that bank will not able to oppose the sale of the property (which they can as all mortgage loan contracts stipulate that banks are entitled to cancel mortgage loan contracts, and request the debtor to clear the debt in one lump sum, if there has been an non-consented sale of the property).
You will have to budget for 7% transfer tax and 3% capital gains retention, as well as legal, notary and land registry fees. The 3% CGT retention you will be able to get back if there has been no profit on the sale.
After the transfer has been effected you can change the utility and Town Hall records into your name.
There are no specific non-resident mortgages with better conditions than those for residents. In fact the former tend to be more costly than the latter as there is a higher degree of risk of non-payment (being normally a holiday or investment property).
If you wish that we help you further please advise.
Hola Antonio!
I have been in contact with Raymundo but know he is on holiday now. We have just found out that the previous owner of this house acted as guarantor without our knowledge, approval or signatures. We only found out as we are in difficulty paying our mortgage and Banca March said we could have 2 years interest free payments but we need the signature of the guarantor to do so. She refused to do so. We asked for documents pertaining to the purchase of the house to send them to you and found out that 2 months after we all went to the Notario to sign for the purchase of the house, the prevous owner then went alone to the Notario and signed again as guarantor. This may sound helpful. But it is stopping us from getting help with the mortgage now. We are both residents in Fuerteventura, myself for over 7 years and my (newish) husband, for 16 years. We brought the house to spend our last years together in. Now it looks like we may lose it. We know things will improve as in 2 years we both become eligable for our British state pensions and the pressure will be off. Our mortgage is for 82.000€ and 10 years remain. The previous owner has made it clear that she would be happy to take over the mortgage repayments as long as she can have first refusal on the house when it comes up for auction if repossed by the bank. She of course cannot lose having sold the house to us for 145,000€, 35,000 of that being cash and not stated on the documents. Sale value was put down as 110,000€.
We have asked Banca March for the papers with our signature agreeing to have her as our guarantor, as we certainly did not agree to that. They say now that there are no such papers with our signatures. They also said that the Guarantor does not need our signatures and can go along to the notario and sign alone for that.
This seems unbelievable!
We cannot get help with our mortgage repayments without her signature. But, she can go along and act as guarantor without our signatures or even knowledge.
Surely this cannot be right.
Would really appreciate you help with this matter.
Kindest regards,
Rina and Chris Campion
We bought a house in 2007 through BBVA and in truth we should never have been given a mortgage. Our only income was cash in hand, so we had no proof of earnings. The bank valued our home at €154,000 and so we took out a mortgage of €100,000. We have now discovered that the actual value of our house was around €70,000 and the bank greatly over-estimated in order to lend us the full 100%. We are now unable to pay the mortgage, but the house isn’t worth enough to cover the outstanding debt. Is there any way that the bank can be held accountable for irresponsible lending?
Steve, your proposal, albeit not without reason, would be almost certainly quashed by the Courts. The reason for this is the prevailing mentality in Spain where if you enter into a contract you should be aware of the consequences of failing to comply and so far consumer protection regulations don’t reach thus far. If however we could prove that the valuer manipulated property values then you would stand a chance but I would not like to encourage you into taking legal action as the case is weak.
Your options are to either try to get a longer term on outstanding mortgage, reduce the interest rate or sell the property.