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We are in 3 months of mortgage arrears with a Spanish bank for two properties the developer have not completed properly. What are our options?

Property Law

Raymundo Larraín Nesbitt

16th of September 2007

Q. We are in 3 months of mortgage arrears with a Spanish Bank for two properties and can not afford to make the repayments on both mortgages, the developer & builder had not completed the properties properly and have gone bankrupt. We asked the bank for assistance in converting the mortgages to interest only and increasing the term but they would not agree to this. We are concerned as we do have a property in the UK but do not want are property in the UK to be chased after. The properties in Spain are worth 200,000 euros but we can not sell them at 140,000 euros each in which we would make a loss but may be repay the mortgages of 132000 euros each. If the spanish bank was to repossess our spanish property and sell by auction and not retrieve the full mortgage amount can they legally chase us for the remaining money in the UK and try and chase us for our UK property?



    A. In respect of your query and the difficult situation you depict the following considerations come to mind at this point:

    1. You inform us that you own the properties outright and yet have not been completed by the developer and builder, with whom you contracted to finalize the works. In this event you will need to consider suing both parties for compensation, if this is deemed appropriate in the light of the (financial) circumstances of both parties.

    2. Spanish banks, unlike their UK counterparts, do not normally offer interest-only mortgages and if they do it will only be for the first two years as a teaser. UK banks located in Spain do offer interest-only mortgages up to 15 years.

      It is very important in Spain not to wait to default to start negotiating with your bank. After 3 months of mortgage arrears Spanish banks start to take legal action, so even if you reach a settlement with them after said time you will still have to pay not only the owed amount albeit all the legal expenses borne due to said default. So it is better to prevent rather than to cure. It is very important to highlight that after 3 consecutive monthly unpayments other banks or credit institutions will be weary of lending you, you must always negotiate beforehand if it’s foreseeable that you are going to default on your monthly repayments. Banks are open to renegotiate the lending terms providing you are not in arrears with them.

      Ideally one should renegotiate with the bank before defaulting in any monthly payment. There are plenty of debt consolidation companies that can negotiate in your behalf a less burdensome monthly repayment with the drawback of extending the repayment period for a commission.

      If you have already defaulted on a monthly repayment we advise you to seek the advice of a lawyer immediately.

    3. It is very important to raise the awareness that on defaulting a mortgage loan in Spain you have unlimited responsibility on all your current and future assets regardless of where they are located. The delay interest on defaulting a Spanish mortgage loan ranges typically between 24 to 27 % compounded annual interest. This could well mean that in a span of only a few years you could easily end in negative equity (you owe the bank more than what the house is worth). Spanish banks may pursue this debt in the UK against your UK assets, it is uncommon but it can well happen. This will depend on the mounting debt which increases over time and also on the lender bank being Spanish or a UK bank. The latter will be more prone to pursue your UK assets.
That is why we advise you to hire a lawyer if you are in mortgage arrears in Spain already so as to ensure to protect your UK assets from your defaulted Spanish mortgage loan.

At this point I would like to offer you our Mortgage Default Settlement service which includes negotiating with the Spanish bank on your behalf to settle the matter as soon as possible so they do not pursue your UK assets in the future. If you want more information on this service, please contact mortgagedefaults@lawbird.com.


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