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Unregistered
07-13-2009, 01:06 PM
Hi - can anyone tell me what happens if i can no longer pay my mortgage and want to return my keys to the CAM Bank? The property is worth 70,000 and my mortgage is 63,000. Would the CAM bank expect me to pay the deficit if they sold it and only made say 50,000? I have a mortgage on a home in the UK and a UK business, would I have to find the cash from somewhere to make up the deficit?

Lawbird Lawyer
07-13-2009, 01:50 PM
Dear Sir/Madam,

This subject has already been discussed in other forum threads:

E.g.

handing over the keys to the bank (http://www.marbella-lawyers.com/forums/showthread.php?t=218) - 24th February 2009
Unregistered

Providing your lender is interested (CAM savings bank),you will be required to make up for the shortfall, yes. A dación en pago has expenses borne by the lender on you relenquishing ownership on signing a deed at a Notary. That's why everything hinges on the property having enough equity (as a rule-of-thumb at least 20%) to offset the associated expenses (7% Transfer Tax, Plus Valía tax, land registry and notary fees...).

Many of these potential daciones en pago will actually be sorted out as pre-foreclosure distressed sales (fire sale). So it won't be the bank wko buys the property from you, it will be a third party buying BMV. It's a win-win for everyone involved.

You successfully waive the personal and unlimited responsibility of defaulting a Spanish mortgage loan should you slip into negative equity (as in your case)

The lender gets rid of the loan and does not have to set aside expensive provisions before the Bank of Spain.

Banks want money, not bricks.

The Spanish name for "handing back the keys" to the lender is called "dación en pago". Please read my articles on the Dacion en Pago Explained (http://www.marbella-lawyers.com/articles/showArticle/spanish-mortgage-dacion-en-pago-handing-keys-bank) and the Dación en Pago Procedure (http://belegal.com/wordpress/dacion-en-pago/) for more details, the only ones written in English on the matter.

All it is, is that your lender agrees to buyback the property from you and in exchange they will write-off the outstanding debt having it fully discharged. You will not receive any money. This is formalised by means of signing a Deed at a Spanish notary and you surrendering the keys to them.

The reason people do this is because on you defaulting servicing your Spanish mortgage the lender can repossess you. Please read my article on bank repossessions in Spain (http://www.marbella-lawyers.com/articles/showArticle/home-repossessions-in-spain-defaulting-on-mortgage). If after they have repossessed you the property is left in negative equity, meaning you owe the bank more money than what the property is worth, they can actually pursue you abroad in your home country.

In other words, unlike the US, you are personally at fault on owing money to the Spanish lender as per art 1911 of the Spanish Civil Code. The property itself, the collateral, was only guaranteeing the bank loan. Post repossession you will be held personally liable with all your assets, both now and in the future, for the difference between what you owe the bank (plus the repo associated expenses, lawyer's fees, default interests etc) and what the property is now worth after the full repossession procedure is over. The same thing happens in the United Kingdom.

That is why many defaulting borrowers in lieu of being repossessed would rather either sell the non-performing mortgage as a distressed asset (of which there are now many websites available) or else follow a dación en pago procedure if they are unable to find a buyer in time.

For a dación en pago to work out, two things are required basically:

1.- The property must not be in negative equity.
2.- Your lender must not have started a repossession procedure against the property.

Basically the outline of how it works is as follows:

1.- The customer must be on time with payments (the repossession legal procedure must not have been initiated), with Community fees and also with local taxes.
2.- You contact your lenders' branch manager and propose it to them.
3.- The borrower will require it to be reappraised. You will be expected by your lender to pay this in advance. On average it's approx 350€.
4.- If on average 80% of the new valuation of the property covers (debits +13% of the debits like legal expenses) the lender will accept to take the possession of the apartment, cancelling your debits and will waive taking legal action both in Spain and at the British courts.
5.- The day of signing the Deed at the Notary, the borrower will surrender the keys, and leave the property clear of furniture and tenants.

It is not compulsory to hire a lawyer for the dación en pago. What is compulsory is that you appoint a translator to act on your behalf if your command of Spanish is low.

However, we just cannot stress enough how important it is to appoint a lawyer who will act both as a translator and also verify that indeed your debt with the lender is being effectively fully discharged on you signing the Deed. Besides your lawyer will be able to negotiate with the lender as some banks will try to make borrowers pay for some expenses. The Notary is not there to give you legal advice as they act impartially to either party.

Lawbird Legal Services (http://www.lawbird.com/)offers this legal service at a flat fee of 1,392€ (16% VAT already included). Depending on where your property is located within Spain, further travelling expenses may be applicable.

We advice you contact your lender first prior to hiring us and see if they accept the dación en pago. The reason is that the above legal fee is a retainer fee and will not be refundable regardless of the outcome. So it's a good idea to first make sure the bank will accept the dación en pago before you hire us. If you think they are dragging their heels and weeks go by without feedback it might be a good idea to hire us to help push the matter through.

If you are interested in hiring this legal service please contact/email us. (http://www.lawbird.com/services/contact)

Yours faithfully,
Raymundo Larraín Nesbitt