Are You in a Controlled Foreclosure Mood?
Again and again, I receive requests for help from property owners struggling to pay the loan with whom I can only sympathize with, and, to the extent of my capabilities, offer my help. The problem is there is not much more one can do apart from trying to negotiate with the bank, in the manner I have previously written about.
And so, if everything else fails, it is then crucial to adopt what I call the “controlled foreclosure mood”, which is when you know you are being kicked out but you remain calm and think strategically. At the end of the day, you know that you have, at least, anything between 12 and 24 months to find new accommodation and, until the eviction order gets effectively carried out, there is plenty of time to weigh different options. I have listed pros and cons of this situation:
For
- You stop paying the mortgage, the community fees, the Council Tax and any other payments not related to your essential supplies, and actually start saving! Whereas the above outgoings can run up to €1,500/month on, say, a 2-bed apartment, the same apartment you can rent for €500/month.
- You have the answer to the endless dilemma of trying to save a property that is in substantial negative equity vs. walking away from it. You don’t have a choice and thus, it brings a sense of closure to an unsettling predicament.
- You have time to look for rental accommodation, without the rush of an impending eviction order.
- You benefit from newly enacted laws that would preclude the lender, if you still end up owing them after repossession, from seizing anything under 1,5 times the minimum wage (€641), or €961, plus an additional €200 per dependent family member earning less than the minimum wage. Also, the property will not be auctioned for less than 60% of the valuation.
- You know that, whatever happens in the future, it is quite likely that you are en route to get rid of the dreaded negative-equity because banks’ lawyers, who tend to be posted far away from where you are and who are pretty laid-back (i.e., CAM lawyers are in Alicante, Sabadell-Atlantico in Barcelona etc.), are not going to send private investigators to find out exactly where you derive your income from, as an ex would! Their business is banking, not debt-collection.
- It is quite possible that the next government, hopefully the PP (Partido Popular), will improve dramatically the economic state of the country and implement effective rules to ensure that the so-called “right to a second opportunity” is carried forward.
Against
- The bank can repossess the property for less than it’s owed on it, which would entitle them to pursue you for the balance.
- You need to disappear for a while from land registries, car registries, etc., if you know what I mean, whether you have assets in Spain or abroad (particularly in the EU, cannot see Caja Extremadura chasing after a beach front apartment in Thailand but conversely, can see Banco de Santander targeting a 3-bed detached house in Woodford Green).
- You need to be careful with having bank account in your name, as occasionally the bank could request from the court the issue of a “sweeping” information order, on all banks, to know if you have any cash in them. This means that you need to operate through a company or a friend/family member.
- You may feel an element of stigma, but, hey, nothing wrong with that, you now live in stigma land…this is Spain!
In my opinion, it is vital to view this situation as a business that has gone wrong and little more, working around the problem as it comes to you but more importantly, not allowing it to engulf your being or weaken your spirit till you give up.
Hi
Very helpful article, but one question. As I understand it, jf the bank cannot sell the property at auction (because noone wants it or the bid is too low) then it has to apply a value of 60% to the property and only sums above this can be chased for debt. But the question is- is it 60% of the original valuation when the property was bought, or 60% of the valuation today? Or some other figure?
Thanks
Hello Gerry,
It is 60% of the valuation for mortgage purposes, as agreed on the mortgage deeds.
Dear Antonio
Thanks for that. Will the “valuation for mortgage purposes” amount in the deeds be the same amount as the valuation done by the bank when the mortgage was approved?
Generally this is the case, it is the same figure for both concepts.