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Thread: What to do if I cannot meet the mortgage repayments?

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  1. #1
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    Default What to do if I cannot meet the mortgage repayments?

    we currently owe 234,000euros on our mortgage but will not be able to carry on paying the mortgage payments. Can you please advise what steps we can take. The mortgage is with a spanish bank. Our property is in Moraira, Spain.

  2. #2
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    I would try to renegotiate with the bank more favourable lending conditions. Now under Spanish law it’s free to extend the payment period before a Notary public, it would be free for you. On doing this the monthly repayments would be considerably lower and thus more manageable. The drawback is that on the long run you will be paying much more interests on the property.

    Banks are normally open to renegotiate because the last thing they want is for you to fall in arrears. I would try speaking with them and make them realise your current situation.

    I believe your calculations are wrong. The only properties which are “safe” from negative equity are those bought approximately before 2002. On you defaulting your mortgage, compound annual delay interests ranging between 24%-29% are applied, plus the bank’s lawyer s fee are added in as well which are approximately 15.000€. To this you must add the expenses of the seizing procedure and selling the property in a public auction which are high as well. As per my article on Bank Repossessions in Spain a property sold in a public auction will fetch at least only 50% -if not less- of the current market value.

    The following is a link to a real-life case (27th of July 2009) in which the borrowers defaulted and the bank repossessed the property auctioning it off publicly. No one bid for the property so the lender adjudicated itself the property for 50% of its appraissal value. They still owe the lender after the auction 120,000€ as principal and a further 73,000€ in interests and associated expenses which increases at a compound interest year on end. Their proposal to follow a dación en pago was turned down by their lender as their property was in negative equity.

    http://www.elpais.com/articulo/catal...27elpcat_3/Tes

    So if you bought your property in October 2007 and default now it’s not only 233.000€ you are going to owe the bank, it’s also all the above, so we can easily be speaking of say 290.000€ on a property which will only fetch in a bid on a public auction 160.000€/180.000€. This outstanding owed amount –including all the expenses and fees- will increase over time due to the compound interest.

    All the difference still outstanding and owed by yourself (that is 290 – 160 = 130.000€) after the forced sale of the property in a public auction is known as negative equity as per our article on Bank Repossessions in Spain.

    So as you can see it’s a very serious matter as the bank can chase your UK assets lodged under the names of all those that signed the mortgage deed either as borrowers and as guarantors should the borrowers lack enough assets. This doesn't mean of course the bank will chase your assets abroad as this has a high expense for them. But they certainly can if they choose to.

    That is why if you are 100% sure you will not be able to fire-sell this property as a distressed sale you ought to speak with your bank to try to renegotiate more favourable lending terms.

    Please read as well this other thread.

    Yours faithfully,
    Raymundo LarraÃ*n Nesbitt
    Last edited by Lawbird Lawyer; 07-27-2009 at 01:27 PM.

  3. #3
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    Unhappy extension of mortgage years for payment

    We are interested in what you say about it being free to extend the mortgage time. We asked our bank today and they made lots of excuses to why it would not be a good idea. We are a Spanish/English couple aged 31 and would like to extend from 27 years to 35 or even 40 years so that we can manage the mortgage repayments during these difficult economic times. They said it would cost thousands to change it at notary so is this not true? They also said we should wait until our yearly renewal in July as our amount will go down lots then. We have mortgage of 115,000 euros costing 700 euros a month at 5.88% on a flat bought in 2007 and we are in negative equity because other flats in the block are on market for 90,000 euros. Another story is that we had money stolen by our first bank manager and changed bank via a friend of bank manager. We know we were nieve but the bank manager got us to sign a guarantor of 16,000 and then took the cheque in his name. The B bank do not know where that man is and we have been told it would be very expensive to take it to court.

    Therefore we are a young couple who have been wronged by one bank and now would just like to survive these difficult times by extending our mortgage. How can we do it for free and what is the oldest you can be - example to extend to 40 years would be when we are 70 years old. Does it have to be up to when you retire age of 65 only? And does this even matter as we would like to sell the flat as soon as we can but realise that really this will probably be in 3 or 4 years when the property market is getting better again in Spain.

  4. #4
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    Dear Sir/Madam,

    Extending the mortgage repayments must be only used as last resort. Although in the short term your mortgage repayments will be lower on the long term you are actually paying much more. So basically it's a solution to weather off the storm.

    As written above its free for the borrower providing you request it prior to the 22nd April 2010. If you change any other clause in the mortgage deed you will have to pay the associated expenses.

    Your bank must agree to it. The first step is talk to your bank request a full comparative excel spreadsheet on both options to see if the numbers stack up. If you are happy with extending the mortgage repayments then request it from them.

    Additional disposition number two.

    Your partner can translate:

    DISPOSICIÓN ADICIONAL SEGUNDA. No sujeción al gravamen establecido en el artÃ*culo 31.1 del texto refundido de la Ley del Impuesto sobre Transmisiones Patrimoniales y Actos JurÃ*dicos Documentados de las escrituras públicas de novación de préstamos con garantÃ*a hipotecaria que se refieran a la ampliación del plazo del préstamo.

    No obstante lo previsto en el apartado 1 del artÃ*culo 31 del texto refundido de la Ley del Impuesto sobre Transmisiones Patrimoniales y Actos JurÃ*dicos Documentados, no quedarán sujetas a dicho gravamen y se extenderán en papel común las escrituras públicas que documenten la ampliación del plazo de los préstamos con garantÃ*a hipotecaria concedidos para la adquisición, construcción y rehabilitación de la vivienda habitual realizadas en el periodo de dos años a contar desde la entrada en vigor de este Real Decreto-ley.

    Yours faithfully,
    Raymundo LarraÃ*n Nesbitt
    Last edited by Lawbird Lawyer; 01-27-2010 at 06:17 PM.

  5. #5
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    Muchas gracias

  6. #6
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    You're welcome.

  7. #7
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    Default Extension of mortgage

    Quote Originally Posted by Unregistered View Post
    Muchas gracias
    Hello – 5 years ago I took out a mortgage to construct a swimming pool and small extension and to carry out minor renovations to my villa – it has become increasingly difficult to meet the mortgage repayments per month so I contacted my bank to extend the term of the loan – the bank agreed but say I must pay all the relevant costs and charges ( about 1500 euros ) I spoke to my bank about what I had read on your forum and I emailed them the new law – I received an email from them saying that the construction of a swimming pool and the renovations I carried out were outside the constraints of the new law – they say the new law was to be applied to mortgages that were taken out only for the purpose of either buying the house – constructing a new house on a piece of land or totally renovating a house from a ruin.
    I have copied their email below – Can you please tell me if the bank are correct in their interpretation of the new law .I feel I am entitled to the free mortgage extension.

    Hello Eunice,

    Regarding to our conversation before, I copy the part of the new law regarding free extension.
    Your mortgage was asked to cover costs of swimming pool and alterations of your house, the target of these operations are not incluided in the current law.

    "Como medida para favorecer la situación económica
    de las familias, a la vista del alza experimentada por los
    Ã*ndices de referencia que se utilizan para fijar las cuantÃ*as
    de los intereses de los préstamos hipotecarios, en la disposición
    adicional segunda, se prevé que en las operaciones
    de ampliación del plazo de préstamos con garantÃ*a
    hipotecaria concedidos para la adquisición, construcción
    y rehabilitación de la vivienda habitual, los titulares del
    préstamo podrán disfrutar de la no sujeción de la cuota
    fija de la modalidad de actos jurÃ*dicos documentados, en
    el Impuesto sobre Transmisiones Patrimoniales y Actos
    JurÃ*dicos Documentados, por el otorgamiento de documentos
    notariales, que graven estas operaciones, que
    podrán extenderse en papel común.".

    Kind regards,

    CAM INTERNACIONAL 0569- CALAHONDA, MIJAS

  8. #8
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    Default Repayment problems

    I am struggling to pay my Mortgage repayments,but am as yet not in arrears.
    I have approached the bank and been refused Interest only repayment.
    I have also asked about remortgaging(refused)and extending the repayment time currently remaining 14 years but they said as our ages are 46 and 48 this wouldnt be an option.We suggested an appointment with there head office to discuss the situation to be told we cant do this and have to deal through them.
    Our business SL is struggling in the climate to continue to keep all our payments up to date and as we also have an additional bank loan and overdraft decreasing our mortgage repayments would give us a chance of survival.
    We dont know what else we can do or try.It seems we have practically exausted all options and dont know where to turn or what to try next
    CAN YOU HELP PLEASE

  9. #9
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    Dear Madam,

    I copy you in our article on this matter:

    http://www.eyeonspain.com/forums/posts-long-5402.aspx - 3rd September 2008


    Advice to Struggling Mortgage Borrowers

    Raymundo LarraÃ*n Nesbitt
    3rd February 2010

    Introduction

    Following-up on my article of 2008 on Bank Repossessions in Spain ex-pat landlords are still struggling to remain afloat in 2010.

    It is important to clarify that a property on being repossessed still belongs to you, not to the lender. You are the one that appears lodged at the land registry as the title owner. On defaulting a mortgage loan the debt goes personally against you. You will be held liable with all your assets both now and in the future following art 1911 of the Spanish Civil Code.

    The above has huge legal implications that most foreign borrowers were not aware of at the time of signing their Spanish mortgages. It means that if the property has slipped into negative equity (i.e. house price fall, or after a repossession procedure) then the outstanding balance is owed by yourself. This debt is pursuable even in your home country against your assets held abroad. As explained in my article on Spanish repossessions, if no-one bids for the property in the public auction the lender will be forced to withhold it for 50% of its appraisal value. Meaning you will owe the outstanding balance plus the repossession expenses incurred (lender’s lawyer’s fees as well as court agent’s fees). The latter will be added to your debt. Post credit crunch it is renowned that professional bidders have vanished into thin air as credit is hard to come by. Bidders are required to lodge before a law court auctioning off the property 30% of the appraisal value. Given the current grim financial environment we can safely assume that in most cases properties being repossessed and auctioned off will end up in lender’s property portfolio. Which explains why lenders have been busy incorporating real estate divisions to get rid of their excess property stock.

    Spanish banks can and are already chasing-up debts in the UK or elsewhere against any assets you may hold in your home country. They may outsource this work to local UK law firms or else debt-collecting agencies or else simply sell the non-performing mortgage to specialised companies for a fraction of the nominal value. The latter will then chase you. Lenders will not hesitate to send you threatening letters with the hope of avoiding a protracted repossession procedure.

    In practice, it will fall down to the amounts owed. It's true that this is often an expensive process for Spanish lenders so they may be reluctant to follow it. Bear in mind the default interest rates agreed within your Mortgage deed normally range between 15-30% compound interest p.a. (not simple interest!). So the debt will mount exponentially over time very quickly. Walking away from your Spanish debt is not an option for most people as it will come later on to haunt you in life. Not to mention that your credit rating in Experian and other credit-rating agencies will be ruined.

    Some borrowers in arrears, unable to meet their financial commitments, have simply handed over the keys to their lenders in the hope this would discharge them from their debt liability. Crass error. In Spain to hand over the keys to the lender it must be done through a formal procedure at a Notary public which involves signing a deed relinquishing ownership in exchange of being fully discharged from the mortgage liability. This is known in Spanish as “Dación en Pago de Deuda”. Spanish banks are very surprised at this new phenomenon dubbed “jingle mail” and have been caught completely off-guard because they are used to dealing with Spanish borrowers who no matter what service their mortgage on time even if they have to live on bread and butter. Whereas many foreigners have been walking away as if this was the US thinking no further legal consequences would arise from turning their backs to the problem.

    The ability of a solicitor to act on your behalf on this matter is honestly very limited. The ongoing credit crunch doesn’t make it any easier as Spanish banks themselves are increasingly struggling to secure finance lines from abroad. The Bank of Spain has again passed more stringent regulation in 2010 which forces Spanish lenders to increase the provisions set aside for defaulted loans from 20% to 30%. In my opinion this new regulation will have as collateral victims foreign struggling mortgage borrowers as Spanish banks will from now onwards grow increasingly wary of caving in and accepting a dación en pago de deuda (handing over the keys in exchange of the debt).

    Historical low interest rates have held at bay repossessions in Spain after they had reached an all-time high in 2008 when the Euribor rate (to which most Spanish mortgages are referred to) peaked on October 2008. If interest rates are once again raised later on in 2010, as experts forecast, in the hope of a market recovery we may face –yet again– a new tidal wave of bank repossessions.


    Tips to struggling mortgage borrowers:



    1. Negotiate interest-only. This can be arranged whilst the property is put up for sale or just to weather off the storm meanwhile. This option has become increasingly difficult post credit crunch as Spanish banks seldom grant interest-only and if they do, it's really just as a teaser for two years.

    2. Extending mortgage repayments an additional number of years. The drawback is that on doing so the amount of interests you pay on the long run is increased dramatically. So it's only an option for those who are left with no other really. The Government is now allowing this change free of charge to struggling mortgage borrowers providing they are resident and the property is their permanent dwelling. Borrowers will not pay for Notary or Land Registry fees on following it.

    3. "Dación en pago". This is basically handing over the keys to the lender and signing a deed at the Notary whereby the lender commits itself not to chase you for the debt and consider it discharged for good. Two things are required, the property must not be in negative equity and ideally there should be, as rule-of-thumb, 20% equity so as to offset the lenders’ expenses on taking over the property. It doesn’t matter if you are in arrears, what does matter is that the repossession procedure must not have been initiated by the lender. This is harder than people think because due to the easy credit of the last years the Loan-To-Value of properties was really high, too high in fact, hence all the bank related problems we keep reading with massive writing-offs. People borrowed far too much and now their properties may have fallen below what they borrowed against them. Should this happen the lender will be very reluctant to agree to this "dación en pago de deuda" because the collateral now will have few equity.

    4. Selling the property as a distressed asset. If you have already run through the numbers and you are convinced that you will no longer be able to service your mortgage, rather than defaulting and being repossessed, you should very seriously consider selling the property as a distressed asset. The catch again is that the property should not be in negative equity. The more it is the least likelihood there will be anyone interested in it as they in turn are regarding the purchase as an investment and the numbers need to stack up to make it worthwhile for them.

    5. Applying for debt consolidation. There are many financial companies offering this service. Basically what they do is group all your debts with different lenders (from credit cards, your mortgage loan, personal loans etc) with only one lender who then extends the loan repayments. The consequence this has is that your monthly repayments are cut down significantly making them more affordable. However the drawback once again is that on extending the financial commitments you will pay more interest on the long run.

    6. Swapping over the mortgage to a new lender. Many lenders are now offering to take on existing mortgages paying all the transfer expenses. These lenders normally require the property was bought prior to 2003. In addition, for those who hold collar clauses, swapping over to another lender offers the opportunity to get rid of these bothersome clauses and take advantage of the low interest rates.

    In Conclusion

    My advice is to draw the red line on a repossession procedure. You should try to avoid this scenario at all costs. As the debt goes personally against the borrower in Spain, you may live a nightmare with debt-collecting agencies, banks or lawyers knocking at your door for years to come. As the compound default interest is fairly high this will be tagged on to what you already owe creating a debt spiral.
    Last edited by Lawbird Lawyer; 02-18-2010 at 01:22 PM.

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    Please note the information provided in the above article is of general interest only and is not to be construed or intended as substitute for professional legal advice.


    Related articles:

    • Spanish Mortgages: No Tax on Term Extension or Swapping to Interest only – 26th June 2009

    • Spain’s Senate Petitions Government to Suppress "Floor Clauses" - 23rd of September 2009

    • 10 Common Abusive Clauses in Spanish Mortgage Loans – 4th of June 2009

    • The Dación en Pago Explained -28th March 2009

    • Sterling Plunge: Not All Doom and Gloom -4th January 2009

    • Steep Drop in Euribor Translates into Cheaper Mortgages -31st December 2008

    • The Dacion en Pago Procedure – 21st November 2009

    • Cannot Keep Up Repayments on your Spanish Mortgage? Not All is Lost. -9th November 2008

    • What are my options if I have fallen in arrears on my Spanish mortgage? -18th November 2007

    • We are in 3 months of mortgage arrears with a Spanish bank for two properties the developer have not completed properly. What options do we have? -16th September 2007



    Lawbird Legal Services is a law firm with broad experience in Litigation, Corporate and Spanish Property Law.


    Yours faithfully,
    Raymundo LarraÃ*n Nesbitt

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