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Archive for May, 2010

Bank of Spain Raises Real Estate Provisions Set Aside by Lenders

May 27th, 2010

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 (http://belegal NULL.com/articles/showArticle/home-repossessions-in-spain-defaulting-on-mortgage)’s or on accepting daciones en pago (http://belegal NULL.com/articles/showArticle/spanish-mortgage-dacion-en-pago-handing-keys-bank) 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 (http://www NULL.cotizalia NULL.com/en-exclusiva/cajas-colapso-provisiones-banco-espana-20100527 NULL.html). 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 (http://www NULL.levantelifestyle NULL.com/index NULL.php?mod=art_det&art_id=707)”, this change in law would have as collateral victims those borrowers that seeked to hand the keys (http://belegal NULL.com/forums/showthread NULL.php?t=622) in lieu of being repossessed (AKA as Dación en Pago de Deuda (http://belegal NULL.com/articles/showArticle/spanish-mortgage-dacion-en-pago-handing-keys-bank)). 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 (http://belegal NULL.com/forums/showthread NULL.php?t=73&page=15#150).

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 (http://belegal NULL.com/articles/showArticle/home-repossessions-in-spain-defaulting-on-mortgage) 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 (http://www NULL.cotizalia NULL.com/noticias/exprime-banca-provisiones-tocado-beneficio-20100526 NULL.html) and Expansión (http://www NULL.expansion NULL.com/2010/05/26/economia-politica/1274892946 NULL.html)

 

Related articles:

  • Buying Property In Spain Tips Part II. Off-Plan Property (http://belegal NULL.com/articles/showArticle/buying-off-plan-property-in-spain) – 18th April 2010
  • Advice to Struggling Mortgage Borrowers (http://www NULL.levantelifestyle NULL.com/index NULL.php?mod=art_det&art_id=707) -13th April 2010
  • 10 Common Abusive Clauses in Spanish Mortgage Loans (http://belegal NULL.com/articles/showArticle/10-common-abusive-clauses-in-spanish-mortgage-loans) – 4th June 2009
  • The Dación en Pago Explained (http://belegal NULL.com/articles/showArticle/spanish-mortgage-dacion-en-pago-handing-keys-bank) – 28th March 2009
  • The Dación en Pago Procedure – 21st November 2008
  • Bank Repossessions in Spain: A Legal Perspective (http://belegal NULL.com/articles/showArticle/home-repossessions-in-spain-defaulting-on-mortgage) – 25th June 2008

Property, Taxes , , , , , , ,

Spain’s Wealth Tax Reloaded

May 20th, 2010

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 (http://news NULL.bbc NULL.co NULL.uk/2/hi/8679222 NULL.stm)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 (http://www NULL.elpais NULL.com/articulo/espana/nuevas/medidas/Gobierno/quiere/ahorrar/15000/millones/elpepuesp/20100512elpepunac_5/Tes) (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 (http://www NULL.elmundo NULL.es/mundodinero/2010/05/19/economia/1274280458 NULL.html)

 

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 (http://www NULL.eleconomista NULL.es/economia/noticias/2161797/05/10/El-Gobierno-aprobara-un-nuevo-impuesto-para-las-rentas-superiores-a-un-millon-de-euros NULL.html)

 

(http://www NULL.elmundo NULL.es/mundodinero/2010/05/19/economia/1274280458 NULL.html)

Related articles:

Taxes , , ,

EU Pulls the Stops and Vows to Put and End to Inheritance Taxation Discrimination on Non-Resident Beneficiaries Inheriting in Spain

May 20th, 2010

Here we go again. As explained in my article on “Spanish Inheritance Tax: Advantages of Making a Will in Spain (http://belegal NULL.com/articles/showArticle/spanish-inheritance-tax-spain-iht)” 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. (http://ec NULL.europa NULL.eu/taxation_customs/resources/documents/common/infringements/factsheet/2010/05/2010-05-513-es-tax-personal_en NULL.pdf)

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 (http://belegal NULL.com/articles/showArticle/spanish-inheritance-tax-spain-iht) – 3rd September 2009
  • Free Testamentary Disposition for UK Citizens: Only if You Own Property in the UK (http://belegal NULL.com/blog-by-antonio-flores/free-testamentary-disposition-for-uk-citizens/) – 22nd October 2008
  • Spanish Inheritance Tax Abolished? I’m Afraid Not! 19th September 2008
  • Ways on How to Avoid Inheritance Tax on Spanish Property (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/how-to-avoid-spanish-inheritance-tax-on-spanish-property) – 22nd June 2005
  • Applicable Inheritance Law to Estate Located in Spain (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/spanish-estate-inheritance) – 16th April 2004
  • Spanish Inheritance Tax: How much is it? (http://belegal NULL.com/articles/showArticle/spain-inheritance-tax) – 1st February 2000

Inheritance, Taxes , , , , ,

New EU Regulation to be Passed on Succession and Wills

May 18th, 2010

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. (http://www NULL.justice NULL.gov NULL.uk/consultations/docs/ec-succession-wills NULL.pdf)

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 (http://belegal NULL.com/articles/showArticle/spanish-inheritance-tax-spain-iht) – 3rd September 2009
  • Free Testamentary Disposition for UK Citizens: Only if You Own Property in the UK (http://belegal NULL.com/blog-by-antonio-flores/free-testamentary-disposition-for-uk-citizens/) – 22nd October 2008
  • Spanish Inheritance Tax Abolished? I’m Afraid Not! 19th September 2008
  • Ways on How to Avoid Inheritance Tax on Spanish Property (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/how-to-avoid-spanish-inheritance-tax-on-spanish-property) – 22nd June 2005
  • Applicable Inheritance Law to Estate Located in Spain (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/spanish-estate-inheritance) – 16th April 2004
  • Spanish Inheritance Tax: How much is it? (http://belegal NULL.com/articles/showArticle/spain-inheritance-tax) – 1st February 2000

Inheritance , , , , ,

Plagiarism: Flattery or Just Plain Stealing?

May 7th, 2010

Since founding of the belegal.com website (http://belegal NULL.com/about/) 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 (http://belegal NULL.com/questions/askALawyer/) 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 (http://belegal NULL.com/articles/showArchive) and/or blogs (http://belegal NULL.com/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 (http://noticias NULL.juridicas NULL.com/base_datos/Penal/lo10-1995 NULL.l2t13 NULL.html#c11s1)), 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 (http://www NULL.diariosur NULL.es/20080714/local/malaga/detenidos-torremolinos-plagiar-pagina-200807142046 NULL.html), and were taken into custody for plagiarizing just one article from a website.

Furthermore, all our articles are protected with Copyscape (http://www NULL.copyscape NULL.com/)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 (http://belegal NULL.com/about/copyright), 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 (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/drunk-driving) – Our original article published on the 1st March 2001.
  • Drinking and Driving in Spain (http://www NULL.idealspain NULL.com/Pages/Information/drinkdrive NULL.htm) – “Inspired” article, both unsigned and undated.

Malaga Law Solicitors

  • Dissolution of Joint Property Ownership in Spain (http://belegal NULL.com/articles/showArticle/dissolution-of-joint-property-ownership-in-spain) – Our registered article published on the 14th November 2007.
  • Deed of dissolution of joint property ownership (http://www NULL.malagalaw NULL.com/news/guides/deedofdissolution NULL.asp) – “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 (http://belegal NULL.com/articles/showArticle/home-repossessions-in-spain-defaulting-on-mortgage) – Our registered article written in 2007 and published on the 25th June 2008.
  • When you can’t pay the Mortgage (http://www NULL.tumbit NULL.com/how-to-guides/articles/45-when-you-cant-pay-the-mortgage NULL.html) – “Inspired” article from late 2009, both unsigned and undated.

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