Antonio Flores’ Blog

Two posts ago, in my post titled Spanish Property Auction Horror, I mentioned a very innovative court ruling that allowed someone in Navarra to walk away from their property (a process called in Spanish Dacion en Pago) without the risk of going through what the Wiltshire couple mentioned in the post went through.

Some notes on the ruling (PDF, Spanish) so that an opinion can be formed on it:

• A bank forecloses and repossesses, given that bidders (that species in extreme danger of extinction) fail yet again to turn up. The value given to the property, on application of the mortgage foreclosure archaic provisions, is of approximately €20,000 under the debt.
• The Court of First Instance rules that it would not be equitable and fair for the bank to charge this amount and reject enforcing collection of this debt.
• The Court of Appeal, deciding on the legal challenge brought by the bank, does not consider its entitlement to claim a further €20,000, after the property has been repossessed, to be an “abuse of discretion“, from a formal point of view, for the law has been applied in its own terms.
• The court does consider, conversely, that since the bank allocated a value of €75,000 to the property when the mortgage deeds were signed, this specific aspect of the initial agreement cannot be glossed over and requires further understanding.
• The court goes on to say that, when appealing the initial ruling, the bank conveys a morally  alarming reflection, it being the known fact that the property is now worth far less due to adverse economic circumstances, adding that such situation is not attributable to the property ex-owner but to international economic crisis reasons, an opinion the Court says is shared by the Spanish Prime Minister as well as Mr. Barack Obama.
• As a consequence of this, continues the Court of Appeal, the bank, being an integral part of the economic system and therefore not aloof from the above considerations, is partly responsible for their -irresponsible- role in the most savage crisis since 1929.
• The court then invokes that laws have to be interpreted according to the reality of the time when they are to be applied (article 3 of the Spanish Civil Code) and, to the surprise of many, and in spite of repeating that it would it not be abuse of discretion to enforce the €20,000, reckons it morally reproachable for the bank to pursue borrowers for a fictitious sum when, at the time of granting the loan, the value of the property was more than enough to cover the loan and that this situation has not been occasioned through any fault of their own, nor that of the bank, although the reality is that the latter is a protagonist of the collapsed financial system. It also then adds that bank’s reason for pursuing the borrowers (economic crisis) is a highly sensitive issue that have made a lot of people “hot under the collar”.
• Finally, the court rules that in respect of the reduced value of the repossessed property, for which the bank showed no documentary evidence, the formal adjudication (repossession) of it, given its initial bank-accepted initial valuation of €75,000, is enough to cancel the debt.

So what have the reactions been to this?

• Spanish Consumers Associations are understandably over the moon and hail the ruling as very brave. FACUA, one of them, has its reservations as it, they say, the Government that now needs to make a legal move to change the laws. If not, they claim, they will lobby for the laws to be reviewed to accommodate this very consumer-friendly ruling. Finally, they insist that a law-change is necessary to break once and for all with the harrowing consequences that the price-inflating conspiracy plotted by banks and valuation companies has had on consumers.
• Spanish Bankers Association are understandably mad at it as they claim, if it becomes rule then lending markets may go through turmoil, lenders will increase interest rates, investors would not trust a system where contracts can be broken (yeah, tell this to the victims of the  Spanish off-plan property fiasco, or are they not investors?) and some consideration or other. They encourage banks to fight this new trend.
• Someone called Moody’s claims that it is an isolated case and that it should not be made rule, given that it would encourage borrowers to default when they feel that the property is in negative equity. It also says that it goes against Spanish laws and warns that, if it sets a precedent, they will have to put the Spanish mortgage market under scrutiny and perhaps, have it revised.

Antonio Flores Mortgages, Property bank repossessions, dacion en pago, foreclosure in spain, handing back the keys

After absorbing tens of thousands of properties through negotiation with defaulting borrowers, or via foreclosure proceedings, banks are now property-sicker than ever to take on anymore bricks and mortar that are less valuable than the loans registered against them.

When not being able to repay the loan and when such loan is well over the value of the property, one has to implement some creativity when attempting to convince the lender that they should book an appointment at the Notary Public to arrange the process of Dacion en Pago, where your loan is cancelled against transfer of title to the bank (or in plain English, handing over the keys to the bank), without going to Court.

Unfortunately, this is generally quite difficult to achieve, but where there is no other option, one has to press on. Here are a few tips, some of which I have borrowed from Manuel Gonzalez, a blogger expert in the matter :

1. Find ways to get rid of other assets you may have: Careful however, do it before you start defaulting as you could be accused of concealment of assets (alzamiento de bienes).
2. Stop paying: Some people like to think that by keeping up the repayments you are a more authoritative negotiator. Quite the contrary! If they see that you are repaying there is no need for them to waste their time with you.
3. Understand your enemy and know the way he thinks: Understand what is the reason for them not to be interested in keeping your property, and why that keenness in “screwing you”. So when approaching a bank manager or clerk, try to concentrate on attacking the lender as an entity, not the person individually, even if he was the guy who shook your hand when you first bought the property. These guys, understandably, will be following instructions, and so it will be better to befriend them, as they may be in your position tomorrow and could even share some tips with you.
4. Prepare your paperwork and check the value of the property for mortgage purposes, if it is equal or higher than the debt you have.
5. Approach the bank manager, and if possible, the area risk manager, and expose your predicament. Try to have empathy and expect and demand same, they could be sacked by close of business (day).
6. Have a formal notice sent to the bank: It is important the your meeting and your intentions are documented. A burofax is the preferred and cheaper method.
7. Persevere: You are already causing discomfort to the persons working in the branch and to the entity, which is very good. If you have the time try to pay them a visit every day or every other day, although always in a friendly manner. You will manage to stand out from the rest of dacion en pago pursuers and will come across as a man/woman on a mission.
8. If credible, advise them that you are leaving the country as you have managed to secure a 10 year contract as a dockmaster in Antananarivo port, Mauritania, or an equivalent extravagant location. Have your supporting paperwork ready, and if you don’t have it just make it up!
9. Don’t fall for the branch manager scaremongering tactics: Make sure that you show no emotions when they tell you that, if you stop paying, they will take you to court, and that your debt will exponentially grow with all those lawyers’ fees, arrears interest and costs, as bank managers are used to saying. Offer them a friendly grin and the shoulder shrug, which incidentally will also help you train your trapezius muscles. Also, don’t be so silly to wear your best suit and Italian shoes when meeting with the area risk manager. Smart but casual is the norm: sporting sandals, or flips flops, with socks, will do the job. I suggest something like this.
10. And finally, be ruthless, just like they are and have been with you since you first stepped into that branch.

Antonio Flores Mortgages, Property bank repossessions, dacion en pago, handing back the keys, spanish mortgages