Spanish Law Tribune

One of the major problems landlords face post credit crunch is the increasing number of non-paying tenants. Many landlords rely on this source of income to offset partially or wholly the mortgage repayments of the property that is being leased being forced to have them legally evicted (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/spain-tenant-not-paying-rent-spanish-property).

In my article on “Landlord: Keys to Successful Rental Income (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/income-lease-rental-insurance-spain)” I pointed out that one of the best ways to avoid non-paying tenants was to take pre-emptive measures such as screening candidates carefully weeding out those with unsuitable profiles.

There is now a helpful website available that lists non-paying tenants nationwide: Fichero de Inquilinos Morosos (http://www NULL.fimiberica NULL.com/) (FIM). For a reasonable fee of only 9,95€ you will be able to search –in English- if your prospective tenant has actually defaulted previously on a Tenancy Agreement. As pointed out in my article, there are professional defaulting tenants that roam the country in search of their next victim, preying preferably on trustful non-residents. In hard times such as these, many struggling landlords cannot endure the hardship of a financial leach that eagerly exploits Tenancy laws shortcomings.

This website’s database is continuously updated with the input provided by both eviction rulings as well as by other users’ feedback. You can additionally include your own non-paying tenants in their list providing you comply and follow the online form’s instructions. Professional non-payers who’ve made a lifestyle out of it will have already been included in the list.

I think it is a useful tool that compliments nicely other tools such as rental insurance, rental bank guarantees, adding an arbitrage clause and screening out your prospective tenants. This gizmo can be used only for those candidates who’ve made it to the top of your screening list. You might as well spend a few dozen Euros now rather than having to fork out thousands at a later date. Better safe than sorry.

• Non-Paying Tenants? No Longer an Issue – 23rd October 2009
• Comunidad de Propietarios: Avoid Problems with Your Neighbours in Spain (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/spanish-comunidad-de-propietarios) – 26th June 2009
• New Express Eviction Law: Much Ado About Nothing -13th July 2009
• Paying the Rent Late Twice will be Cause of Eviction – 4th June 2009
• Spanish Express Eviction Law Pre-Approved (https://belegal NULL.com/blog-by-antonio-flores/spanish-express-eviction-law-pre-approved/) – 24th December 2008
• Landlords Afraid of Non-Paying Tenants Take Pre-emptive Measures -16th September 2008
• Landlord: Keys to Successful Rental Income (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/income-lease-rental-insurance-spain) – 31st January 2008
• How to Evict Non-Paying Tenants (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/spain-tenant-not-paying-rent-spanish-property) – 17th December 2007

raymundo Property, Spanish Rentals defaulting tenants, FIM, non paying tenants, rental, rental arbitrage spain, rental insurance spain, renting, Spanish eviction, spanish tenancy, spanish tenancy agreement

As we had previously reported, an Administration Procedure does not equate to bankruptcy as some mistakenly repeatedly uphold. Receivership procedures in Spain are geared towards saving ailing companies which are undergoing temporary cash-flow problems. Throughout the Administration Procedure, and dependant on a Financial report drafted by experts, the Mercantile judge will rule on whether a company under administration should file or not for bankruptcy.

Developer Llanera was the first large Spanish developer to seek Creditor Protection back in 2007. It is fitting that it’s the first one to announce its clawed comeback. The Creditors’ General Meeting must ultimately give its approval tomorrow to the company’s proposal.

This is indeed welcome news for stressed creditors who are now bogged down in similar legal quagmires and have lost all hope.

Source: El Economista (http://www NULL.eleconomista NULL.es/empresas-finanzas/noticias/1571923/09/09/Llanera-primera-gran-inmobiliaria-que-saldra-del-concurso NULL.html)

raymundo Litigation, Property administration, administration procedure, bankruptcy, creditor protection, llanera, receivership

Contrary to what would seem like reasonable Fiscal Policy in the midst of a deep recession, Spain’s Government has decided it will raise its Indirect tax, Value Added Tax or VAT.

It doesn’t take a degree in Economics to realise just how, errm to put it mildly, counterproductive this is to the broad Economy, more so in Spain’s case. With Consumer Confidence plummeting in Spain it would seem the Government should strive to incentivize spending, rather than curtailing it at every opportunity. Oddly enough and contrary to popular wisdom, that is exactly what it has announced last Saturday the 26th of September.-a tax raise leaving the door ajar to future tax raises…

With Spain’s Property Industry, which has long been Spain’s driving force along with Tourism, in the doldrums, with 5 million unemployed and reportedly steadily rising to unprecedented levels unseen since the days of the II Republic (1931), with a reported stock of between 1.6 to 3 million unsold houses (http://fistfulofeuros NULL.net/afoe/economics-country-briefings/three-million-unsold-properties-in-spain/) (both resales and new builds), with a Public Deficit spinning out of control adding 80 million Euros of debt everyday and with Consumer Spending spiralling downwards hitting fresh lows every month our Government decides that what is best needed by our countries’ ailing Economy is to …raise taxes; contradicting its much vaunted electoral promise of “lowering taxes”.

On Saturday the 26th of September it has been decided that as from next year 2010:

1. The extended VAT of 16% is to be raised to 18%.
2. The reduced VAT of 7% is to be raised to 8%. This is the tax that is levied on new builds (off-plans). The tax on resales remains unchanged. This is not welcome news by a struggling sector vying to unload a huge stock of unsold new build properties
3. The super reduced VAT of 4% will remain unchanged.

One can only pray our Government will not raise even further our tax burden in such dire times. Lowering taxes is always the right path on the road to economic recovery which incentivates citizens saving and helps to attract Foreign Investments; both of which will be invested reactivating Consumer Spending which will ultimately lead to creation of new jobs, not to their destruction and the reckless public subsidizing of lost causes.

raymundo Property, Taxes tax, Taxes

Rumours were confirmed last Wednesday 22nd of July when Aifos’ petition to file for receivership was formally accepted by Malaga’s Mercantile court number one. On the following day Aifos issued a press release by which it informed they had filed for voluntary receivership.

As we had previously pointed out in prior communications, filing for administration does not equate to bankruptcy as has mistakenly been reported at large e.g. In Spain’s highest profile administration procedure to date, involving well-known developer Martinsa-Fadesa, this company will restructure its 7 billion euro debt and will continue trading normally within the next years.

What developer Aifos has sought is for creditor protection allowing it to buy time to restructure its financial commitments. However, the mercantile judge ruling on the matter may ultimately decide at a later stage that Aifos should file for bankruptcy if it is deemed not to be able to continue trading. This will be decided upon in the ensuing procedure.

As from the time the official announcement is published in Spain’s Official Law Gazette (B.O.E.), creditors will have a deadline of one month to join Aifos’ Creditors list. (EDIT:  Today 31st of July it has been officially published)

Off plan purchasers may fall in any one of these three categories:

1. Purchasers that signed a Private Purchase Contract and have not had their off plan dwelling delivered.
2. Purchasers who had already withdrawn from their Private Purchase Contracts and had filed a lawsuit with no final ruling issued yet.
3. Purchasers who had litigated already and had a final ruling on their case but had not been refunded yet.

As a general rule everyone who purchased a non-delivered property through developer Aifos, whether having litigated or not, should retain a lawyer (and court agent) to join the Creditors’ list and/or litigate. The difference between cases is on their rights (i.e. those with final rulings will be labelled as “ordinary” creditors which lands them higher above on the Creditors’ ladder). Notwithstanding the above, all three cases will be considered as non-secured creditors.

Purchasers will have to liaise with their existing legal representative or else appoint a solicitor to either join the Creditors’ list and/or litigate. Once the receivership has been accepted trials will now be heard only at Malaga’s Mercantile court number one unlike before in which it was actually Civil courts that passed judgement on cases involving Aifos.

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

• 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.
• Continued monitoring of the receivership procedure ensuring client’s rights are upheld
• To negotiate with the judicially-appointed administrators reaching agreements as necessary
• To keep the client informed on the ongoing procedure
• Assisting to Creditors’ meetings to defend the client’s interests
• To claim or challenge judicially agreements taken by Malaga’s Mercantile Court

We will be sending this week to all our Aifos’ clients a detailed newsletter informing them of the legal situation and the available options available to them. This newsletter will also be available to non-clients upon request.

If you have purchased a non-delivered property through Aifos and wish to receive further information on this matter, please contact us free of compromise. One of our lawyers will contact you to explain clearly your legal options.

Email:  Contact Form (http://lawbird NULL.com/services/contact)
Phone: +34 952 86 18 90
Summer opening hours: Monday to Friday, from 8:00 till 15:00 hours

lawbird Litigation, Property AIFOS, aifos administration, aifos bankrupt, aifos bankruptcy, aifos files for bankruptcy, aifos insolvency, aifos problems, aifos receivership

Within the next months we are going to be bombarded with articles spinning the Government’s eagerly anticipated new Express Eviction Law (http://www NULL.senado NULL.es/legis9/publicaciones/html/textos/A_032-01 NULL.html) which has yet to be pre-approved by the Senate (https://belegal NULL.com/blog-by-antonio-flores/spanish-express-eviction-law-pre-approved/) before it is returned to the Congress of Deputies for its final enactment and publication in Spain’s Official Law Gazette.

This new law aims primarily to tackle cases of non-paying tenants which overstay in let properties, to the astonishment and despair of landlords.

But will it really help out? In short, no.

The proposed measures implemented by this law can be easily challenged or overcome by tenants. Besides the new measures will not shorten the eviction procedure significantly as sought as it hinges on the courts not being clogged, as they always happen to be. The shortcomings of the proposed measures are self evident.

The core of this proposal is the much vaunted 2 weeks waiting time, dubbed express eviction, as from the time there is a ruling evicting the tenant. But there’s a catch; the trick is that the said ruling can easily take 6 months on average dependent on the courts’ agility, so the tally would really be 6 months plus the 2 weeks. So yes, there is some reduction in the timescales involved to evict non-paying tenants, albeit not groundbreaking enough to open a champagne bottle as we are being led to believe. This half-baked attempt to redress matters will at best save only a couple of months. Landlords will still have to wait months to recover the possession of their let properties.

This is a classic example of passing new laws to satisfy the broad public (read electorate) at large which at the end of the day may only complicates matters further without really tackling pressing issues and even leaving the door ajar to potentially adding new problems. At best we can label it as a half-hearted attempt to address the situation.

At a time when many ex-pat landlords are already struggling with their mortgage loans (https://belegal NULL.com/blog-by-antonio-flores/cannot-keep-up-repayments-on-your-spanish-mortgage-not-all-is-lost/), as they relied on the let’s income to offset it against the mortgage repayments, the last thing they needed was the aggravation of withstanding non-paying tenants (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/spain-tenant-not-paying-rent-spanish-property). This situation has lead many landlords to default on their mortgage loans which in turn have lead to a soar in repossession procedures. (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/home-repossessions-in-spain-defaulting-on-mortgage)

A golden opportunity has been missed –again- by the legislator to address Spanish Tenancy laws that are heavily biased, for historical reasons, in favour of tenants. These laws need to be urgently and decisively adapted to modern social reality. When this is done, here’s wishful thinking, letting will become a serious alternative to purchasing properties allowing the Spanish rental market to pick up from the ground as in the rest of Europe.

In the meantime we will regrettably have to continue waiting until a law is passed that will boldly challenge this unfair situation once and for all allowing for express evictions instead of politically ill-conceived piecemeal attempts aimed to satisfy everyone.

raymundo Litigation, Property evicition in Spain, landlord insurance spain, landlords, Spanish eviction, spanish tenancy, spanish tenancy agreement, tenants

Spain’s Tax office has replied within the last month two binding legal queries which shed some light onto the taxation of the amendment of mortgage terms.

On the first reply of 25th of May, the Dirección General de Tributos (DGT) clarified that switching  to interest-only will no longer attract Stamp Duty. On the second reply of 10th of June, the DGT has stated that changing the mortgage’s reassessment date will no longer pay Stamp Duty either. It would be regarded as exempt following art 9 of Law 2/94. E.g. a borrower changes the mortgage resetting from once a year to a quarterly basis.

Regardless if the borrower chooses one or both options they will not attract tax. Also, a lender cannot lawfully charge more than 0,1% to extend mortgage repayments. 

This is welcome news indeed for struggling mortgage borrowers that will now have more options available to them without being taxed on choosing them. Reducing citizen’s tax burden is always the right path on the road to financial recovery.

raymundo Property, Spanish Mortgages, Taxes

A mere delay in paying the let for a second time, by a non-paying tenant who has been previously sued by the landlord, will be a just cause for an eviction procedure. This new scenario has been made possible thanks to a recent rulling by the Spanish Supreme Court of Justice.

As explained in my article on Eviction Procedure in Spain (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/spain-tenant-not-paying-rent-spanish-property), one of the strategies a non-paying tenant could follow to stall the procedure after the landlord had filed a law suit against him requesting a formal eviction, was by paying late (“enervación”). This stalled the procedure and forced the landlord to continue with the tenancy agreement. Albeit the tenant could employ this tactic only once.

The new change will mean that if the tenant should pay belatedly a second time (i.e. for two consecutive months), after the landlord has previously initiated an eviction procedure for the same reason, it will no longer mean the case can be dismissed or thrown out of court. It will mean the tenant breached the contract. Period. Spain’s Supreme Court has now unified the different approaches and regards that the tenant has breached the Tenancy agreement, provided the contract stipulates a deadline in which the payments have to be met every month.

This puts an end to non-paying tenants which continuously abused the legal system on deciding when they felt fit to pay their landlords in lieu of when they were meant to. This change has been brought about by one of the latest ruling of Spain’s Supreme Court. This is the second ruling on the same issue with a similar outcome which will now set jurisprudence in our legal system. The prior ruling (http://www NULL.elmundo NULL.es/elmundo/2009/06/01/espana/1243864463 NULL.html) is also from this year.

Both of these rulings aim to address the increasing problem landlords are faced with in Spain on letting their properties to professional defaulting tenants. Additionally, the dire financial circumstances have forced what used to be trustworthy tenants into defaulting their lets and abusing our system too. These rulings will now add new legal tools to defend landlords, as in Spain, the laws have been traditionally biased towards tenants for historical reasons which need to be adapted to social reality without delay.

raymundo Litigation, Property evicition in Spain, landlords, Spanish eviction, spanish tenancy, spanish tenancy agreement, tenants

(http://None)The (12 month) Euribor (http://www NULL.euribor-rates NULL.eu/current-euribor-rates NULL.asp) fell today to 3.085%, and will set the average for December at 3.4%.

The Euribor (ER) is the rate of interest at which banks lend to each other. It is the reference which most Spanish Lenders take to set the mortgages’ rate of interest. This rate is reviewable by your bank, depending on your Mortgage Deed, every six months or once a year. The European Central Bank (ECB), which sets European Monetary Policy for all EU members with the exception of the UK, has no direct control over the ER.

Post credit-crunch fear, shortage of liquidity in the markets, widespread bankruptcies and plummeting stock prices unseen since 1929’s infamous Wall Street’s Stock Market Crash has gripped banks with fear in the last quarter of 2008. This fear to lend to each other due to the mutual mistrust on one another’s writedowns has fuelled the ER hiking it to levels which were unprecedented historically.

In line with the US, the European Central Bank has lowered consecutively the interest rate which indirectly affects the ER. The Euribor rate reached an all time high on October 2008 peaking at 5.393%. To this you must add the spread on paying a mortgage which typically for a non-resident will be 1% on top of the Euribor rate. This caused a surge of mortgage defaults (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/home-repossessions-in-spain-defaulting-on-mortgage) in 2008.

The reason being is that the ECB is lagging behind the United States Monetary Policy which has now set its interest rate at almost zero (0.25% to be exact) to hopefully fuel the ailing American economy. So the ECB has quite some catching up to do next year as its interest rate is currently held at 2.50%. Currently the Euribor rate for 12 months is set at 3.085%

In any case the continued policy of the European Central Bank to lower the interest rates over the last months will help to drive down the Euribor rate which is always news most welcomed by everyone, specially borrowers. Spanish banks will revise and adjust the Euribor rate which in turn will lower your monthly mortgage repayments. This normally happens in July.

For example, a typical mortgage of €300,000 revisable next July 2009 could drop by as much as €550 a month if the Euribor rate continues its downward trend and hits the 2% forecasted by financial experts by mid 2009.

So for all those that are struggling to pay their mortgage loan and are considering defaulting you should be aware of this significant drop in 2009. We suggest you find out at your bank when the Euribor rate will be adjusted for your own particular case and how much money you stand to save.

raymundo Property bank repossessions, Euribor, mortgage default, mortgages in Spain, repossessions, Spanish Mortgages, struggling mortgage repayments

Gestión de Obras y Reformas, S.L., one of the numerous creditors of Spanish developer Aifos, has initiated before Málaga’s Mercantile Court number one a forced administration procedure as result of the money it is owed. In Spain companies undergoing a difficult financial situation can either initiate voluntarily an administration procedure or else one of their creditors may force it. The latter has been the case.

Aifos owes 850 million Euros (718 million GBP). It’s largest creditors are Banco Popular with 200 million Euros, followed by Banco Pastor with 33 million Euros. Another 96 companies form part of the creditors list to which AIFOS has been owing funds for the last 2 years.

AIFOS has currently employed 2,000 workers.

IMPORTANT: all our AIFOS clients have been sent a newsletter on this issue on Tuesday 25th of November. If you haven’t received yours or are unable to open the attachment please contact us. (http://www NULL.marbella-lawyers NULL.com/about/contactForm)

Source: El Economista Financial Newspaper (http://www NULL.eleconomista NULL.es/empresas-finanzas/noticias/879928/11/08/-La-inmobiliaria-Aifos-se-enfrenta-a-un-concurso-de-acreedores-con-una-deuda-de-850-millones NULL.html)

lawbird Property AIFOS, aifos administration, aifos bankrupt, aifos bankruptcy, aifos insolvency, aifos problems, aifos promociones, aifos promociones inmobiliarias

For those unable to service their Spanish mortgage a dacion en pago (datio pro soluto), is one of the proposed solutions we highlighted on our previous article regarding Bank Repossessions in Spain (http://www NULL.marbella-lawyers NULL.com/articles/showArticle/home-repossessions-in-spain-defaulting-on-mortgage). Antonio Flores also mentions it on a recent blog post. (http://www NULL.marbella-lawyers NULL.com/blog-by-antonio-flores/cannot-keep-up-repayments-on-your-spanish-mortgage-not-all-is-lost/)

In plain English, dacion en pago means handing over the keys to the bank, and in exchange the bank will discharge all mortgage debt not holding you liable in the future. They will also renounce pursuing the debt in your home country or elsewhere against any other assets you may hold. This solution of last resort puts an end to many people’s growing nightmare as the mortgage debt mounts up and becomes unbearable. On you defaulting a mortgage debt in Spain, the debt goes personally against you, not against the property itself. That is why many defaulting borrowers are realizing with shock that in despite of the lender having repossessed their Spanish property, they may chase you back in your home country or elsewhere for the outstanding debt. 

The dacion en pago involves you signing a deed at a Notary Public by which the bank commits itself not to chase you in the future for the debt and consider it discharged for good. The catch is that the property must not be in negative equity. This is actually more difficult than people think because due to the easy credit of the last years the loan-to-value of properties was very high, too high in fact, hence all the bank related problems we read on a daily basis with massive write downs carried out by Lenders. People borrowed far too much and now their properties may have fallen below their initial loan. If this happens, the lender will be reluctant to agree to this dacion en pago because the property will have no equity left. In this case if a solution cannot be reached the bank will repossess the property. Banks can sell the non-performing mortgage prior to it going to auction. Transfer Tax of 7% has to be paid on the value of the property as if it were a normal conveyance. Some banks will impose that this tax burden is borne by the borrower.

So if you are finding trouble keeping up with your mortgage repayments or you reasonably foresee you may fall in arrears soon and your property is still in positive equity you may suggest this option to your lender. However, it’s only up to the bank to decide on whether they are willing to accept it or not. Some banks are reluctant yet others will consider it although a specific case-by-case study will be required.  

The bank will evaluate if this option is in line with its best interests and will determine the amount of equity left in the property commanding an updated appraisal if necessary. If the numbers stack up, they will accept it. You will both sign the deed at a Notary’s and that will be the end of the matter. We advise you to hire a lawyer to make sure your debt will be totally discharged; besides you will need an impartial translator acting for you.
 
It’s a win-win for both parties really. The borrower is free at last and has managed to secure successfully his assets abroad from the lender or any law firm or debt collection company they may hire to pursue the outstanding debt. The lender on the other hand will now own the property outright and will have successfully waived a lengthy and expensive court procedure (repossession) without having to apply provisions to the Bank of Spain to make up for this dubious loan. These provisions set aside by banks are being looked upon closely by credit-rating agencies post credit crunch.

You can read a detailed article on the dación en pago de deuda here:

The Dación en Pago Explained (https://belegal NULL.com/articles/showArticle/spanish-mortgage-dacion-en-pago-handing-keys-bank) – 28th March 2009

Lawbird Legal Services (http://www NULL.lawbird NULL.com/) offers this service at a flat fee of 1,392€ (16% VAT included). Travelling expenses may be applicable as well, depending on where the property is located in Spain.

raymundo Property dacion en pago, distressed properties spain, distressed property spain, distressed sales spain, hand over keys