The Lawbird Tribune

It was highly anticipated since January this year that the Bank of Spain would raise –yet again– the provisions lenders have to set aside on real estate assets held in their portfolios as a result of NPL’s or on accepting daciones en pago from ailing developers or struggling borrowers. The purpose of these provisions is to offset the likely capital depreciation.

Lenders are required to set aside 10% on adjudicating themselves these assets and deposit it before the BoS. If after 12 months the asset remains in their books they have to set aside an additional 10%. If a further 12 months go by a further 10%. So basically after 24 months they are unable to offload these real estate assets from their portfolio they must set aside provisions for 30%.

So the BoS not only has raised these provisions but additionally has also proposed to shorten the timeline to deposit them down from 24 months to 12 months. The outlined proposal will bring serious consequences on many fronts:

i) As a direct result lenders will suffer a further impact on their already deteriorating balance sheets as they will have to allocate additional funds to offset asset depreciation which sincerely couldn’t come at a worst time as credit is tight. Spanish savings banks will foreseeably suffer the greatest with this change to the point that some may even collapse. The BoS itself estimates the huge impact of yesterday’s change in a reduction of 10%, on average, of Spanish banks’ pre-tax profit.

ii) Indirectly, as I had already anticipated in my article on “Advice to Struggling Mortgage Borrowers”, this change in law would have as collateral victims those borrowers that seeked to hand the keys in lieu of being repossessed (AKA as Dación en Pago de Deuda). Lenders were already increasingly reluctant on accepting them due to the BoS continued raises in these generic provisions in 2008, 2009 and now 2010. This is explained in detail in this post.

What the above translates into, for practical purposes, is that when I wrote in my article on Dación en Pago on 2007 that as a rule-of-thumb 20% of positive equity was required (AKA no-negative equity rule) for a lender to accept a dación procedure the collar must now be raised to 30 or maybe even 40% following the changes in law over the last three years. If you compound this with a foreseeable hike of interest rates by the ECB by this year’s fall or early next year you have brewed a perfect storm for struggling Spanish mortgage borrowers who will no longer have this option available and will most likely be repossessed by their lenders on slipping into arrears.

And the reason is simple, property prices of new-build second homes on the Spanish coasts have fallen by an average of 40% from the appraisal value as the BoS itself acknowledges with the proposal of change in law. So it will be hard to find off-plan properties with 30 or 40% positive equity in them built over the last five years as borrowers typically took 80% or 100% LTV mortgage loans to acquire them. There simply isn’t enough equity left in such cases with such high LTV loans when you compound asset depreciation (- 40% on average). Which is why I think that properties built post 2005 are now probably in the red zone for the purposes of following a dación en pago procedure as owners will be unable to fulfill lenders’ new criteria to accept them.

The Dación en Pago was a solution of last resort to waive the dire consequences of a full-blown Spanish repossession procedure with everything that it entails (personal and unlimited liability with all your assets, both now and in the future); sadly, even this has probably now been removed as an option for all those who purchased with a mortgage loan post 2004 following the proposal announced yesterday by the BoS.

Source: Cotizalia and Expansión

Related articles:

• Buying Property In Spain Tips Part II. Off-Plan Property – 18th April 2010
• Advice to Struggling Mortgage Borrowers -13th April 2010
• 10 Common Abusive Clauses in Spanish Mortgage Loans – 4th June 2009
• The Dación en Pago Explained – 28th March 2009
• The Dación en Pago Procedure – 21st November 2008
• Bank Repossessions in Spain: A Legal Perspective – 25th June 2008

raymundo Property, Taxes banks, dacion, dacion en pago, dacion procedure, handing over the keys, mortgage loans, mortgages, Taxes

So much for “green shoots”. Spain’s Government is mulling over resurrecting Wealth tax which was suppressed, albeit not abolished, as of the 1st January 2008.

In a new attempt to prop up its dwindling coffers the Government is now seriously considering bringing back to life this tax as reported this morning by the Spanish press at large. To sweeten up the deal it will be presumably modeled after France’s, which applies a sliding scale on estates north of €790,000. So basically this “new” Wealth tax would tax, presumably, only those who are deemed “affluent”.

This is a political concession from Zapatero to the left-wing establishment on the wake of last week’s hugely unpopular financial reforms, which were essential and maybe even fell short. His announcement on Wednesday the 12th of May before the Congress on adopting unprecedented harsh financial measures to keep the Budget Deficit at bay created a shockwave of social upheaval which ripples are still being felt a week later with syndicate announcements of strikes. His announcement came after he was phoned on the eve before by no less than US President Obama himself and China’s PM Hu Jintao amid concerns on Spain’s spiralling debt; not to mention Merkel’s public announcements of early last week on taking control if necessary. You really couldn’t make it up, could you?

These measures (i.e. reducing by 5% public servants’ salaries, freezing public pensions, supressing baby checks) caused great anger as it afflicted the weaker core of society. In an effort to counteract the heavy criticisms the Government is now preparing a new batch of tax novelties targeting the “rich”. A Government’s spokeswoman understanded by rich as those having more than €45,000 stashed in a bank. To affirm these financial measures seem somewhat, erm, improvised would be an understatement. 

Honestly, whatever next?

Source: El Mundo

EDIT: 15:30PM

Spain’s Government has just officially announced the creation of a ”new” Wealth tax on estates valued in excess of one million euros.

Source: El Economista

Related articles:

• Spanish Capital Gains Tax Raise to 19% Goes Unnoticed -22nd March 2010
• Spanish Government to Raise Taxes -28th September 2009
• Spanish Inheritance Tax Abolished? I’m Afraid Not!– 19th September 2008
• Property Wealth Tax, at last Suppressed – 10th September 2008

raymundo Taxes and more taxes, taxation, Taxes, wealth tax

Here we go again. As explained in my article on “Spanish Inheritance Tax: Advantages of Making a Will in Spain” the matter of Inheritance taxation is a fairly complex and technical one compounded by the fact that the 17 autonomous regions of which Spain is made can rule on this matter besides the State.

Spurred by protests of non-residents inheriting in Spain (are you to blame Arthur?), Brussels has taken a closer look at this matter and has informed Spain that it gives it a 2 month’s deadline to set the record straight or else it will send the matter off to the European Court of Justice to rule on this issue. In any case don’t hold your breath, it will take some time to sort out.

In Spain there’s an ongoing trend to abolish Inheritance tax, especially in regions under the political control of the conservative party. This has created a three-tier system, speaking broadly, where you have on the one hand an increasing minority of regions which have gone as far as almost suppressing this tax whereas on the other hand you have a majority that apply generous tax allowances without actually suppressing it (i.e. Andalucía). Regional tax allowances are applied only to resident beneficiaries on one of the said regions.

On a third level you have the State regulation which has the least generous tax allowances and is applied to non-residents inheriting in Spain. Beneficiaries of an inheritance resident in one of these regions can take advantage of these generous regional tax allowances which in many cases almost suppress the Inheritance taxable base.

However non-resident beneficiaries inheriting in one of Spain’s regions may be faced with a hefty taxation bill (specially on large estates or when the named beneficiaries are non-family members) as it’s only the State law that is applied in their case in lieu of the more lenient regional laws. This amounts to a formal discrimination between residents and non-residents. These provisions are deemed to be incompatible with the free movement of workers and capital which the founding EEC Treaty of Rome enshrines. Brussels wants for non-resident beneficiaries to have application of State law waived and instead apply regional laws which are more tax-friendly. The problem will be deciding on the “connecting factor”. You can read in English the European Commission’s press release on following this link.

Following what’s happened in similar cases, we can safely assume that non-resident beneficiaries will be able to benefit in the future from the generous regional tax allowances that are now reserved exclusively to those holding resident status in one of Spain’s 17 different regions. Again, this new regulation will greatly reduce lawyer’s headaches. One just cannot stop himself from having warm feelings towards Brussel’s legislators that keep making our life’s easier.

Related articles:

• New EU Regulation to be Passed on Succession and Wills -18th May 2010
• Spanish Inheritance Tax: Advantages of Making a Will in Spain – 3rd September 2009
• Free Testamentary Disposition for UK Citizens: Only if You Own Property in the UK – 22nd October 2008
• Spanish Inheritance Tax Abolished? I’m Afraid Not! 19th September 2008
• Ways on How to Avoid Inheritance Tax on Spanish Property – 22nd June 2005
• Applicable Inheritance Law to Estate Located in Spain – 16th April 2004
• Spanish Inheritance Tax: How much is it? – 1st February 2000

raymundo Inheritance, Taxes Inheritance, inheritance in spain, inheritance procedures, inheritance tax, spanish inheritance, Spanish Inheritance Tax

Every year 450,000 successions are bogged down on cross-border issues relating to the applicable laws. The EU has decided to adopt regulation to help avoid all the related problems that these transnational inheritance cases give way to.

This new regulation, known as the “Brussels IV Regulation”, purports to create a “European Certificate of Inheritance” which endeavours to harmonise the winding-up of the estate procedure to be followed. This certificate is devised to greatly simplify succession procedures throughout all EU-member countries and will hinge on the person’s last “habitual residency” to determine which succession laws ought to be applied. Additionally, this new regulation will also allow testators to choose which regulation should be applied to dispose of their assets and rights.

This regulation is not expected to be approved before 2011/2012. You can find a draft of this interesting new law in English here.

In case you are worried that Brussels will meddle on your deathbed dictating on your overseas estate you ought to know that both Ireland and the U.K.’s Government have opted out of its application, at least in its present form. So for the time being if you hold either of these citizenships you shouldn’t be too worried.

In any case let me close adding that this new regulation is geared towards making European succession procedures run smoothlier and more efficiently; they are not passed to curtail your national rights. Besides it’ll make us lawyers’ life’s easier… and that cannot possibly be wrong, can it?

Related articles:

• Spanish Inheritance Tax: Advantages of Making a Will in Spain – 3rd September 2009
• Free Testamentary Disposition for UK Citizens: Only if You Own Property in the UK – 22nd October 2008
• Spanish Inheritance Tax Abolished? I’m Afraid Not! 19th September 2008
• Ways on How to Avoid Inheritance Tax on Spanish Property – 22nd June 2005
• Applicable Inheritance Law to Estate Located in Spain – 16th April 2004
• Spanish Inheritance Tax: How much is it? – 1st February 2000

raymundo Inheritance Inheritance, inheritance in spain, inheritance procedures, inheritance tax, spanish inheritance, Spanish Inheritance Tax

Since founding of the belegal.com website in August 1999, we have been publishing articles and blog posts on legal matters that were of interest to the Expat Community. These articles are written with the aim of providing insight to legal topics that continuously crop up in the free legal queries’ section to which we’ve been replying to, on a daily basis, for over a decade now.

Some people like our articles and blog posts so much that they happen to borrow them from our article archive and/or blogs and include them in their own blogs or corporate websites crediting us as the authors as well as placing a working link back to our website, which is just fine by us. Yet a minority decides to take a step further crossing the red line, removing the names of the lawyers that wrote them so as to cheekily credit themselves as the authors! Some would argue that imitation is the most sincere form of flattery, albeit in our opinion profiting from other’s hard work whilst taking credit for it is just too much to bear with. We certainly do not regard it as flattery, and take legal action against offenders when appropriate.

In Spain, articles, blog posts and in general all original written material is protected by Spain’s Intellectual Property Laws (Royal Decree 1/1996). Moreover, Spain’s Penal Code in its Chapter XI protects author’s Intellectual Property Rights against plagiarism in three articles no less (articles 270-272), which have associated to them prison sentence, ranging from 6 months to 4 years. All an offended needs doing is file a denuncia against the offender. As an example, two people were arrested in Torremolinos, and were taken into custody for plagiarizing just one article from a website.

Furthermore, all our articles are protected with Copyscape software, so sooner or later we are bound to catch all those using them without authorisation. Over the last decade we’ve caught over a hundred websites using them unlawfully, as well as seven lawyers, both Spanish and British, all of which apologized. Native English speakers may be harder to hound, because, on mastering English, they are able to sneakily change the wording, producing what they think is an “original” work that makes our copied articles more difficult to track down. Amending or tweaking written content to fool search engines is still regarded as plagiarism and only buys them some time; regardless, they will be held personally liable when found.

As written above, and as per the site copyright policy, we have no problem in anyone using our legal articles in their own websites so long as they comply with two simple requirements:

1. Crediting the lawyer who  wrote them, either as a source or as the author, as appropriate.
2. Placing a working link back to our website where these articles were originally published.

On complying with the above, there is absolutely no need to previously contact us to request our permission to publish them. Hundreds of websites, spanning from mortgage brokers to real estate agencies, use our legal articles unhampered. We only contact those whom we feel abuse us taking unfair advantage of our hard work by not crediting us as the authors or even going as far as removing us and crediting themselves as the authors of our articles!

Spot The Differences

The following three companies have been previously contacted by us allowing them the chance, at their choice, to either remove our articles from their websites or else credit us as the authors. None of them apologized.

Examples of plagiarism:

Idealspain.com

• Drunk Driving Offence in Spain - Our original article published on the 1st March 2001.
• Drinking and Driving in Spain – “Inspired” article, both unsigned and undated.

Malaga Law Solicitors

• Dissolution of Joint Property Ownership in Spain – Our registered article published on the 14th November 2007.
• Deed of dissolution of joint property ownership – “Inspired” article written in late 2008, both unsigned and undated. 

Adding insult to injury is the fact that the only original contribution to it happens to be incorrect legal advice regarding the retention of 3% practiced to non-fiscal residents applied by The Spanish Tax office, which our original article explains correctly.

Tumbit.com

• Bank Repossessions in Spain: A Legal Perspective – Our registered article written in 2007 and published on the 25th June 2008.
• When you can’t pay the Mortgage – “Inspired” article from late 2009, both unsigned and undated.

admin Uncategorized

As we had previously reported, PW was on the brink of filing for Insolvency if it failed to renegotiate 85 million euros of debt. It had already negotiated successfully to refinance over 900 million euros.

PW has successfully waived filing for receivership on reaching an agreement late last night with CAM, Bancaja, Bank Popular and Bank of Valencia to sell assets for the amount of 83 million euros. In exchange PW has transferred ownership of dwellings, golf courses, plots of land and hotels. It has taken PW the last 4 months to re-negotiate its debt commitments. Official confirmation will be today.

The group of companies affected by the possible insolvency were two hotels (Mar Menor Golf Hotel and La Torre Polaris Hotel), El Valle Golf Resort, Polaris World Sports Centre, Polaris Desarrollo, Hacienda Riquelme, Polaris World Development, Polaris World Alquiler de Maquinaria Industrial, Polaris World Hormigones, Polaris World Real Estate, Hacienda Verde, Nicklaus Golf Trail, Mar Menor Golf Hotel, La Torre Polaris Hotel, Centro Comercial El Oasis de Alhama, Oasis Polaris Ciudad, y Alhama Golf Resort.

Currently it has 700 employees which is a long shot from the 2,000 it used to employ in the boom years.

Source: La Verdad

raymundo Property, Uncategorized administration, administration procedure, bankruptcy, insolvency, polaris world, polaris world administration, polaris world bankruptcy, polaris world insovency, polaris world problems, polaris world receivership, receivership

Bank Santander released yesterday a report titled “The Contrarian View” which upholds that market adjustment in Spain’s property sector has now almost concluded. Indeed, living up to its name, it’s a contrarian view.

They estimate property prices have fallen on average 20 to 30% in large Spanish cities. These properties are in the vast majority main residences. The major fall has taken place on the Spanish costas, which are mainly second homes or foreigner’s overseas summer homes. They estimate the average fall in this segment reaches 50%.

In their report they estimate the real estate market peaked out in 2007.  They forecast that Spain’s GDP will resume feeble growth in 2011 picking up pace on the following years.

I find unsurprising the fact that main residences have fallen less than their second home counterparts; that was reasonably in line with what everybody expected.

What I find surprising is the report claiming that property prices have fallen 50% on the Spanish coasts on average. As many would-be buyers who actually booked flights from the UK or elsewhere to fly over to Spain (when that was still possible!) on the hope of finding a dream villa for a 50% discount can attest that this simply is not the case. There has been a lot of hype going on property falling by 50% but frankly this contradicts any empirical observation.

There has been a significant market correction, no doubt, but not to the extent of a 50% fall on the costas. It’s true that some isolated off-plan developments perched atop hills which are a good 10 minute drive from civilization have fallen 50% or maybe even more, but these are few and do not constitute a general rule.

I would say, being coherent with the articles I write, that property prices will still keep on falling across the board over the next years, however steadily. I find the report’s conclusions a tad overoptimistic to be honest. For example, it remains to be seen how the huge property portfolio in the hands of struggling Spanish savings banks will unfold in the near future affecting price fixation when –and if– they are released openly into the market.

This could seriously add pressure driving down prices further adding to the oversupply. Lenders are going to great lengths not to release en masse their ever-growing property portfolios as a result of repossessions or “daciones en pago de deuda“. Fortunately the Government is always there to help them (if not bail them out) amending accounting rules where necessary so balance sheets aren’t hurt.

It’s reassuring that those in need are helped out when needed.

Nevertheless I’d say there are already available interesting bargains (since 2009 actually) mainly from the classic three D’s (divorce, disease, death) and non-performing mortgage loans. But we have not yet reached that stage of capitulation in the property market which this report seemingly implies. I’m sure we will get there at some point or other.

In any case the spring season traditionally brings a surge of conveyance procedures and we are now witnessing a renewed interest in Spanish property over the last month. That is, providing volcanic activity keeps a low profile! Fingers crossed.

Source: Cotizalia

raymundo Property

So, has your flight been cancelled back to the UK? Both European Parliament Regulation EC 261/2004 and of the Council of 11^th February 2004 establish common laws ruling on the compensation and assistance of flight passengers in case of denied boarding or great delay in take off which is applicable and enforceable in all EU member states.

Following this regulation, in case of flight cancellation, passengers are entitled to the following (Art 7 Rights to Compensation):

• Full refund of the air ticket within the next 7 days or alternatively to a ticket to the starting point or been driven to the destination point.
• Pampering (drinks and food, hotel lodging, transport from the airport to the lodging destination, possibility of making two free phone calls or else send two telex, two faxes or two emails)

To a flat fee compensation which will amount to:

• 250€ for flights of up to 1,500 kms
• 400€ for paneuropean flights of more than 1,500 kms. For the rest of the flights between 1,5000 and 3,000 kilometres.
• 600€ for all flights that may not be included in the above categories

Operating air carriers however will be able to waive paying compensation if they are able to prove either that a force majeure (volcanic ash is as good as it gets!) took place or else severe meteorological conditions that may compromise the flight’s security (Art 94 of Flight Law). Art 5.3 of EC 261/2004 rules further on this:

5.3. An operating air carrier shall not be obliged to pay compensation in accordance with Article 7, if it can prove that the cancellation is caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken.

This waiving of responsibility is nothing more than an extension of the legal principle set forth in article 1.105 of the Spanish Civil Code whereby as a general rule no-one may be held liable to compensate as a result of unforeseen events or even if foreseen, were altogether unavoidable.

raymundo Uncategorized cancelled flights, force majeure, passenger rights

Polaris World. We’ve all watched the TV ads with renowned golfer Jack Nicklaus selling us an affordable dream lifestyle under the sun surrounded by beautiful golf courses just a short drive away from the beach.

Unfortunately the dream may turn into a nightmare for many would-be off-plan buyers as Polaris World is now on the verge of filing for Insolvency within the next week. The events which have lead to this situation can be summarised as follows:

• On the 22^nd December 2009 Polaris World filed before Murcia’s Company Court number two a proposal to reach an agreement with its creditors within three months thus avoiding filing for Creditor Protection.
• On the 22^nd of March 2010 it requested an additional -and final- extension of 30 days which was granted by the court.
• This extension ends in 8 day’s time, on the 22^nd of April 2010.

If Polaris World fails to refinance its whole debt within the next week it will be forced to file for receivership in what would become one of Spain’s largest insolvency proceedings do date.

The positive note is that out of the €985 million (870 million pounds) in debt that it needed to renegotiate so as to remain afloat it has already successfully negotiated over €900 million over the last three months. Within the next 8 days Polaris World legal representatives will lead a frantic race against time to strike a deal on the last hour on the pending €85 million.

The stakes are high and the pressure must be almost unbearable for all those involved.

Taking in perspective what’s already been achieved by the negotiators, I believe the €85 million seems a feasible goal.

Source: El Economista

raymundo Litigation, Property administration, administration procedure, bankruptcy, insolvency, polaris world, polaris world administration, polaris world bankruptcy, polaris world insovency, polaris world problems, polaris world receivership, receivership

As we had previously reported on the month of February 2010 Promociones’ Eurohouse 2010 receivership was imminent. Perhaps the “2010″ included in its name was as an ill omen.  

The official announcement has now been made in Spain’s Law Gazette. Creditors will now have 30 days to lodge their credits joining the Creditor’s List.

The deadline to join the Creditor’s List ends on the 30th of April 2010. Credits submitted after the said deadline may be jeopardized.

Non-exhaustive list of affected off-plan developments:

1. Fortuna Golf Gardens
2. Fortuna Hills Golf Resort
3. La Mirada
4. Residencial San Pedro
5. Residencial Miramar
6. Miramar
7. Residencial San Pedro del Pinatar

Off-plan purchasers need to collate the following original documents:

1. Original Private Purchase Contract
2. Original stage payment receipts of having sent over the funds (including the initial reservation deposit) on to Promociones Eurohouse 2010.
3. Original bank guarantees.

To represent a client throughout the whole receivership procedure (not just to merely add them to the Creditor’s list) a Power of Attorney will be required which needs to be both notarized and legalized (with the Hague Apostille). Arranging this POA takes on average 7-10 days from the UK so it is advisable to plan ahead so as not to overrun the 30 days deadline.

Lawbird offers this legal service for a flat fee of €1,300 plus sundries (TBA).

Payment in installments is available upon request.

Appointed lawyers will seek to best defend client’s interests in the ensuing procedure taking the following actions, amongst others:

1. Claiming from the judicial administrators the creditors’ position of the clients submitting all the necessary documents on time and in the due manner. To challenge adopted resolutions on the matter if proven detrimental to the inclusion in the Creditors’ List (this may entail additional legal fees).
2. Continued monitoring of the receivership procedure ensuring client’s rights are upheld
3. To negotiate with the judicially-appointed administrators reaching agreements as necessary.
4. To keep the client informed on the ongoing procedure
5. Assisting to Creditors’ meetings to defend the client’s interests
6. To claim or challenge judicially agreements taken by Elche’s Mercantile Court number 3.

raymundo Litigation, Property administration procedure, bankruptcy, Fortuna Golf Gardens, Fortuna Hills, Golf Resort La Mirada, insolvency, Promociones Eurohouse 2010, receivership, Residencial Miramar Miramar, Residencial San Pedro, Residencial San Pedro del Pinatar