Antonio Flores’ Blog

It is only a few days ago when we read a story of an ailing 80-year-old diagnosed with Alzheimer and dementia, who had been sold €18,000 worth of… worthless financial products from CAM bank. The gentleman in particular had an officially recognized 80% disability, impaired vision and a history of strokes, and yet, he was persuaded by his branch manager into buying CAM shares for €9,000 and a further €9,000 on deposit, until year…3000!

This example of disgraceful behaviour, far from being an isolated case, adds on to a long list of what we could call “bankers´ most despicable actions” (we would completely miss the point if we thought that these are not man-made) and illustrates the utter disrespect and greed of certain individuals working for some banks.

So listed below are Top 7 Banks’ questionable at best, despicable at worst practices I have come across both in the exercise of the legal profession, and exemplifies the declining ethical standards within the industry.

1. Equity Release: a scam that was operated by a number of Scandinavian and British banks where pensioners were asked to gamble away their lifetime savings on two main pretexts: that by registering a mortgage on their property, they could eliminate Inheritance Taxes for their children, legally, and that by investing the loan obtained from the mortgage they would obtain an additional income to their limited pension. A few criminal ongoing court actions, and an avalanche of soon to come civil suits will determine how ethical it was for Rothschild Bank offer a 90-year old a 90% loan on her property…
2. Clip or Swap clauses on mortgages: financial products wrongly sold to mortgage-loan customers as insurance against increasing interest rates. The bona-fide insurance policy was in reality a complex derivative instrument. Most Spanish banks indulged in this awful practice and court cases are being resolved in favour of customers. Bankinter, Popular Bank and a few other culprits have lost 523 Court cases versus 90 ruled in their favour…
3. Bad-advice provided by Deutsche Bank to its customers when advising them that Lehman Brothers and some Icelandic banks, which ultimately went bust, were, nevertheless, the investment of choice. Court number 57 in Madrid is currently dealing with the matter.
4. Awful advice by Santander Bank when offering customers to invest with “world’s biggest conman” Bernie Madoff, despite knowing since 2006 the dangers of investing with him, according to the press.
5. Deceitful advice given to long-standing clients by La Caixa, CAM, BBVA and many other banks to sign up “preferential shares”, when they thought they were depositing their savings on a fixed-deposit. Whereas one would think that younger, dynamic and financial-savvy investors would take on these products, this meeting held by very upset customers seems to suggest otherwise.
6. Abusive use of the extra-judicial foreclosures by some banks. This repossession mechanism is generally (and inadvertently) agreed to by the borrower when signing the mortgage loan deed, is conducted by Notary Publics and can lead the bank keeping a property for €1. An association is fighting to expose this practice.
7. And lastly, a shocking photographic report of Jyske Bank’s not-so-exquisite treatment of an evicted property owner, his belongings and the property itself, following a bizarre dispute lasting 18 years. The Gibraltar-based bank managed to regain possession of an offshore-company-owned property although not ownership, that was retained by the ultimate owner (our client), as confirmed by a  number of quirky court rulings that nevertheless allowed Jyske to put their hands on this property with one sole purpose: destroy as much as they could!

Antonio Flores Mortgages, Scams Banco de Santander, bank repossessions, BBVA, CAM, Deutsche Bank, equity release, Jyske Bank, La Caixa, Rothschild, Swap Clause

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.

Antonio Flores Mortgages bank repossessions, foreclosure in spain, negative equity, walking away from your mortgage

I have an American client, Ray, who happens to be a CAM Bank client. Several months ago, Ray got caught up by this bank’s disastrous decision-making processes and stuck in what seems an unresolvable legal quagmire.

Ray bought from a developer off-plan, back in 2005. In 2008 the properties were finished and licensed but, because the developer was running into problems, there were court cases being filed, and potentially embargoes being registered against the units, including his. So to protect him, on our advice he chose to complete on the property assuming the existing mortgage, without qualifying with the CAM as the application had not been submitted.

On a property valued at €900,000, he had paid more than half of it, during the course of the construction.

The situation was that he owned the property but the mortgage was in the developer’s name, although he kept his payments up to date. Twelve months ago, his loan fell behind by €300 during 3 days, and the CAM, because it coincided in time that they had just foreclosed on the loans on the other unsold units, seized the opportunity and did the same with his. Two days after this he had €20k in his account to cover several installments, but CAM refused point blank to reinstate. No other bank will lend him now, even though is not in a bad creditors list, because of this unusual situation.

This is an example that shows that some banks choose to be where they are: they are just bad banks with bad people running them, no more, and the CAM, the fourth largest savings bank in Spain, epitomises this.

Ray is not alone, as there seems to be a large number of clients who have had to deal with branch managers lacking the minimum common sense you expect from someone in their position. If you are one of those affected, we would love to here you story.

Today on Talk Radio Europe

For those of you interested, I will be today around 4.00 PM on the Life At Five with Allan Tee Show on Talk Radio Europe, to discuss this matter.

You can tune in directly through their website (internet stream), or through the FM frequency assigned in your area.

Antonio Flores Mortgages bank repossessions, CAM, CAM Bank, foreclosure

Two posts ago, in my post titled Spanish Property Auction Horror, I mentioned a very innovative court ruling that allowed someone in Navarra to walk away from their property (a process called in Spanish Dacion en Pago) without the risk of going through what the Wiltshire couple mentioned in the post went through.

Some notes on the ruling (PDF, Spanish) so that an opinion can be formed on it:

• A bank forecloses and repossesses, given that bidders (that species in extreme danger of extinction) fail yet again to turn up. The value given to the property, on application of the mortgage foreclosure archaic provisions, is of approximately €20,000 under the debt.
• The Court of First Instance rules that it would not be equitable and fair for the bank to charge this amount and reject enforcing collection of this debt.
• The Court of Appeal, deciding on the legal challenge brought by the bank, does not consider its entitlement to claim a further €20,000, after the property has been repossessed, to be an “abuse of discretion“, from a formal point of view, for the law has been applied in its own terms.
• The court does consider, conversely, that since the bank allocated a value of €75,000 to the property when the mortgage deeds were signed, this specific aspect of the initial agreement cannot be glossed over and requires further understanding.
• The court goes on to say that, when appealing the initial ruling, the bank conveys a morally  alarming reflection, it being the known fact that the property is now worth far less due to adverse economic circumstances, adding that such situation is not attributable to the property ex-owner but to international economic crisis reasons, an opinion the Court says is shared by the Spanish Prime Minister as well as Mr. Barack Obama.
• As a consequence of this, continues the Court of Appeal, the bank, being an integral part of the economic system and therefore not aloof from the above considerations, is partly responsible for their -irresponsible- role in the most savage crisis since 1929.
• The court then invokes that laws have to be interpreted according to the reality of the time when they are to be applied (article 3 of the Spanish Civil Code) and, to the surprise of many, and in spite of repeating that it would it not be abuse of discretion to enforce the €20,000, reckons it morally reproachable for the bank to pursue borrowers for a fictitious sum when, at the time of granting the loan, the value of the property was more than enough to cover the loan and that this situation has not been occasioned through any fault of their own, nor that of the bank, although the reality is that the latter is a protagonist of the collapsed financial system. It also then adds that bank’s reason for pursuing the borrowers (economic crisis) is a highly sensitive issue that have made a lot of people “hot under the collar”.
• Finally, the court rules that in respect of the reduced value of the repossessed property, for which the bank showed no documentary evidence, the formal adjudication (repossession) of it, given its initial bank-accepted initial valuation of €75,000, is enough to cancel the debt.

So what have the reactions been to this?

• Spanish Consumers Associations are understandably over the moon and hail the ruling as very brave. FACUA, one of them, has its reservations as it, they say, the Government that now needs to make a legal move to change the laws. If not, they claim, they will lobby for the laws to be reviewed to accommodate this very consumer-friendly ruling. Finally, they insist that a law-change is necessary to break once and for all with the harrowing consequences that the price-inflating conspiracy plotted by banks and valuation companies has had on consumers.
• Spanish Bankers Association are understandably mad at it as they claim, if it becomes rule then lending markets may go through turmoil, lenders will increase interest rates, investors would not trust a system where contracts can be broken (yeah, tell this to the victims of the  Spanish off-plan property fiasco, or are they not investors?) and some consideration or other. They encourage banks to fight this new trend.
• Someone called Moody’s claims that it is an isolated case and that it should not be made rule, given that it would encourage borrowers to default when they feel that the property is in negative equity. It also says that it goes against Spanish laws and warns that, if it sets a precedent, they will have to put the Spanish mortgage market under scrutiny and perhaps, have it revised.

Antonio Flores Mortgages, Property bank repossessions, dacion en pago, foreclosure in spain, handing back the keys

As tempting as it may look, “handing over the keys” to the bank (dacion en pago in Spanish) , without pre-arranging this via a Notary Public and disappearing, has to be done with care, for being pretty dangerous, unless you have the right figures. Or you happen to have been lucky enough to have been judged by the court in Navarra that has ruled that the bank is not entitled to not accept the “handing” in of the keys, in a very relevant decision.

This ruling (to be discussed on a next post), however important it may seem, does not take away the horror of our mortgage foreclosure legislation. The reason for this happening is that Spanish provisions in respect of foreclosures, unlike other countries, stipulate that auctions will be valid so long as the minimum bid is over 50% of the auction start price (the latter value generally being pre-agreed when signing the mortgage deeds and equivalent to the valuation), irrespective of the current outstanding debt with the bank.

I have taken a real-life example, on a property at Jardines de Casares, and to understand this have attached the following:

• The print out we got from the bank after the property had been repossessed, showing the existing debt and the value the property achieved at auction.
• The value given to the property, in 2006, for auction purposes (coincidental with the valuation).

So we have then that property was valued, for auction purposes, at €350,700 (the auction start price), the outstanding mortgage was of €243,217 and, as usual, nobody of interest turned up (only retired law-lovers and the occasional passers-by) .

The auction kicked off with only the bank being present -and a few curious skinned time wasters -rapidly skipped the 70% ASP mark and ended being repossessed for 50% of this value. And the “summarily executed” debtor ended up, as a consequence of these unfair laws, without a property but still owing €67,867 plus a further €100,000 approximately in legal costs and arrears interest (19% p.a.).

In the above case-study, from the debtors perspective (which is the one we are interested in here), the following scenarios and consequences were possible (although only scenario 5 was probable, considering the value of the property and the area):

1. Bidder(s) turn up and bid over the debt (being over 70% of the start price): we walk away with no property but no debt and probably some spare cash.
2. Bidder(s) turn up and match the bank debt (between 50% and 70% of the start price): we walk away with no property but no debt. In this case we would have the right, within 10 days, to bring a third party to improve the bid.
3. No bidder(s) turn up but the bank repossesses for the debt value: we walk away with no property but, luckily, no debt.
4. No bidder(s) turn up and bank repossess at over 70% of the start price but under the debt: we walk away with no property and the horrific auction negative-equity.
5. As point 4 but bank repossess at under 70% of the ASP (sometimes at 50% of start price or the value of the debt): we walk away with no property and a larger auction negative-equity, worst than 4. However, albeit illusory, we still have 10 days to bring a third party to improve the bid, up to 70% or the debt.

Under the current Spanish foreclosure system, if we find ourselves in the scenarios of points 4 and 5 we can end up being chased for the difference (which is fictitious although becomes very real once the Judge’s gavel goes down!), calculated by subtracting what article 670 of the LEC (civil Procedural Act) allows the bank to keep the property for, from what we owe them, just as the couple from Wiltshire are experiencing, to their sorrow.

And so, what options do we have? Not many, but I can propose two:

• Stop paying your mortgage and try to convince the bank that it is silly to go to Court and clever to take the property back, because a) you have no property in Europe and b) you are going to live in Peru for the rest of your life (don’t be shy here, concoct a proper story, set them up!)
• If you are not in any of those scenarios, or are too honest to lie, find a friend who will be happy to put in a dummy bid to push the auction value up to the debt you have with the bank. Your friend will have to put down, as a deposit, 30% of the starting price (just over €100,000), and needs to get the bank to make a first bid equivalent to the debt. This will free you from the negative equity, and your friend will be free to get the deposit back, job done satisfactorily! Careful though: the bank’s representative may push his bid short of the debt, making your friend put a higher bid only for the bank to then…pull out. Now your friend has a problem!

And bear in mind the following:

• Most auctions end up with the bank repossessing as they will not -yet- settle for anything less than the outstanding mortgage capital (even if it is way over the market value). We should see a change happening towards mid-2011, as the Bank of Spain has already warned.
• Bidders currently discard 95% of the auctions happening in Spanish courts.

Antonio Flores Mortgages, Property bank repossessions, dacion en pago, foreclosure in spain, spanish property auctions

This is the question I was asked the other day by one of my clients who was about to show me the letter he had just received from his lender, the Danske Bank.

I am appealing to your empathy, and, to that extent, I want you to sit back and think, think how would you feel if after a life of hard work, when you were about to reap the deserved enjoyments of retirement and you had invested all your savings to purchase a hilltop beautiful villa on the Costa del Sol, the following happened (chronologically):

• You landed in Spain having sold your property in the country where you lived the last 60 years, cashed your pension and emptied your local bank accounts.
• You bought your retirement home with your life time savings, mortgage free.
• One sunny Saturday, one bloke, who happened to be a friend of a friend, turned up for lunch with a grin the size of a half-moon.
• After a few glasses of wine and after listening patiently to a rather boring recount of what you think is a vivid lifetime of experiences (might be for you, not for your new friend), this bloke, who you now think is a new friend, reacting with apparent anguish suddenly interrupts you to enquire whether your children are sufficiently protected against Spanish Inheritance Tax, which he conveniently sells as a happiness killer.
• Since by now, owing to the sun and the wine, you trust him, you open your ears and eyes as he explains that you are in serious danger of ruining your future, and that of your children.
• Avid to learn more, you enquire, and because he is in a hurry, he suddenly and quickly offers you a miraculous financial instrument to ensure that not only your unencumbered home is protected but also, you will have a monthly payment for life.
• By now you are well sober, listening to the wonder product that will protect your family plus give you some pocket money. Your friend tells you that he works for Danske Bank and that he can help.

[…]

A few years down the line

• Your friend has disappeared, your property has an embargo on it, Danske Bank is asking you to return €850,000 which you never saw and then you receive, by post, the following letter (click to open in PDF):

• Difficult as it is, you manage to read the letter, and you understand what it implies: your own bank, Danske Bank, without you ever writing to them, and who was entrusted with looking after, investing and providing a return on €1,030,000 (and which they managed to reduce by €850,000 thanks to cautious investing), which they extracted from your home on false pretences has the gall, in spite of it all, to let you know that you happen to have instructed them to debit your  (blocked) account with €23,703, in cover of “LEGAL COSTS” in favour of their own lawyers’ account in Spain so that these lawyers can…errr, sue YOU and repossess YOUR home, after having efficiently lost your life time savings in some volatile very-high-risk Luxembourg bond that was sold to you as cautious.

You have now discovered what the “Danske Bank Kick in the Bollocks” is all about!

Antonio Flores Litigation, Mortgages, Property bank repossessions, Danske Bank, equity release, financial miss selling in Spain, reverse mortgages

After absorbing tens of thousands of properties through negotiation with defaulting borrowers, or via foreclosure proceedings, banks are now property-sicker than ever to take on anymore bricks and mortar that are less valuable than the loans registered against them.

When not being able to repay the loan and when such loan is well over the value of the property, one has to implement some creativity when attempting to convince the lender that they should book an appointment at the Notary Public to arrange the process of Dacion en Pago, where your loan is cancelled against transfer of title to the bank (or in plain English, handing over the keys to the bank), without going to Court.

Unfortunately, this is generally quite difficult to achieve, but where there is no other option, one has to press on. Here are a few tips, some of which I have borrowed from Manuel Gonzalez, a blogger expert in the matter :

1. Find ways to get rid of other assets you may have: Careful however, do it before you start defaulting as you could be accused of concealment of assets (alzamiento de bienes).
2. Stop paying: Some people like to think that by keeping up the repayments you are a more authoritative negotiator. Quite the contrary! If they see that you are repaying there is no need for them to waste their time with you.
3. Understand your enemy and know the way he thinks: Understand what is the reason for them not to be interested in keeping your property, and why that keenness in “screwing you”. So when approaching a bank manager or clerk, try to concentrate on attacking the lender as an entity, not the person individually, even if he was the guy who shook your hand when you first bought the property. These guys, understandably, will be following instructions, and so it will be better to befriend them, as they may be in your position tomorrow and could even share some tips with you.
4. Prepare your paperwork and check the value of the property for mortgage purposes, if it is equal or higher than the debt you have.
5. Approach the bank manager, and if possible, the area risk manager, and expose your predicament. Try to have empathy and expect and demand same, they could be sacked by close of business (day).
6. Have a formal notice sent to the bank: It is important the your meeting and your intentions are documented. A burofax is the preferred and cheaper method.
7. Persevere: You are already causing discomfort to the persons working in the branch and to the entity, which is very good. If you have the time try to pay them a visit every day or every other day, although always in a friendly manner. You will manage to stand out from the rest of dacion en pago pursuers and will come across as a man/woman on a mission.
8. If credible, advise them that you are leaving the country as you have managed to secure a 10 year contract as a dockmaster in Antananarivo port, Mauritania, or an equivalent extravagant location. Have your supporting paperwork ready, and if you don’t have it just make it up!
9. Don’t fall for the branch manager scaremongering tactics: Make sure that you show no emotions when they tell you that, if you stop paying, they will take you to court, and that your debt will exponentially grow with all those lawyers’ fees, arrears interest and costs, as bank managers are used to saying. Offer them a friendly grin and the shoulder shrug, which incidentally will also help you train your trapezius muscles. Also, don’t be so silly to wear your best suit and Italian shoes when meeting with the area risk manager. Smart but casual is the norm: sporting sandals, or flips flops, with socks, will do the job. I suggest something like this.
10. And finally, be ruthless, just like they are and have been with you since you first stepped into that branch.

Antonio Flores Mortgages, Property bank repossessions, dacion en pago, handing back the keys, spanish mortgages

Although selling a property without acceptance of the lender is considered to be, together with not paying the mortgage installments, a forceful reason for foreclosing, the reality is that, in these times of tight financing, it is being used an easy way for cheap and easy finance. How is this possible? I’ll show you below…

Article 118 of the Mortgage Act stipulates that a mortgage loan can be transferred provided the creditor has agreed to it, expressly or tacitly. In our case study (a client of our firm), the bank would have refused to approve the transfer because the property owner had obtained an 80% loan-to-value in 2006, and the valuation was now 25% less. As a result, the property was in some negative equity, the owner was desperate to get rid of the debt and the buyer wanted a 100% loan to value property.

So what did we do? We went straight to the Notary and signed the deeds of transfer with €0 payment. Previously, the buyer had opened an account with the lender and told them that, being a friend of the debtor (owner still at the time) he was going to start covering the mortgage repayments on his behalf, and instructed the lender to debit these from his account. Additionally, we took out a new insurance policy, through the bank, but in the name of the new owner. The idea behind this has been to force the bank to tacitly agree to the transfer of the loan, as they will have been inadvertently accepting repayments and issuing insurance policies in the name of the new owner, who will also have the deeds to his name, thus precluding them from opposing this de facto reality.

Although this is a very quick way to obtain 100% finance, it is risky because:

1. The lender could still foreclose on the property on the basis of its unauthorized transfer if they find out within a certain number of months; it is not clear how many months, but if nobody tells them, they will not find out. However, if they are getting religiously paid, it would be rather stupid to do so.
2. If the new buyer stops paying, the bank could still hold the previous owner liable, although it is possible to successfully argue that the bank tacitly consented to the transfer.

This ‘clandestine’ maneuver is useful when buyer and seller have certain trust in each other, and the owner’s desperation to sell is matched by buyer’s keenness on the property. Allowing principals of up to 100% of the property value, this is like a non-status mortgage on steroids!

Antonio Flores Mortgages, Property bank repossessions, foreclosure in spain, non status mortgages in spain, spanish mortgages

Everyone knows that a mortgage loan title deed is a lengthy document with elaborate legal clauses and complex formulas where the main conditions of the loan agreement are set out. What most people don’t know, however, is that banks tend to include restrictions as to what one can and cannot do with the property. The latter restrictions are what we are more interested in, because breaking them entitles the bank to cancel the loan agreement and request repayment of 100% of the remaining capital.

It has to be said that some of them are clearly abusive and would not withstand a legal challenge on application of the Consumer Protection Act, but going through some of the restrictions makes interesting reading if only to see how one-sided can banking contracts be.

We have used a standard mortgage loan contract, in this case from Caja Rural de Granada (savings bank), although they are all pretty much the same. As an example, this “Caja” can foreclose on the loan if:

1. You are late by 10 days in making a repayment (that’s ten days, never mind 6 months!).
2. You don’t pay the IBI (Council Tax) or Basura (Rubbish Collection Fee) receipts and insurance policies (IBI can be as low as €200s per year and Rubbish collection €40 per six months).
3. You don’t pay the Notary fees for the mortgage deed (possibly the daftest of them all when it is the banks who take the money from you, upfront, to pay for the Notary fees!).
4. You use the property for any other activity other than what has been agreed (any ideas? :)).
5. The property catches fire or is damaged and as a consequence it loses value (this could make sense but you have the bank forcing you take out insurance to cover this anyway).
6. You don’t give the bank the original mortgage deed within 6 months from signing the loan agreement (does anyone know where the original mortgage deed for their property is? From a legal point, it is completely irrelevant where the deeds are once they are registered so you can keep them in a safe, like some villagers do to get proper sleep, or use them to get the barbecue going, it really makes no difference).
7. You rent the property without prior consent of the bank and/or in detrimental conditions for the landlord (this clause is outright illegal and deserves no further comment).
8. You sell the property without the bank’s consent (they must first find out and then choose to add another property to their plentiful property portfolio!).

The notorious stupidity of some of the above clauses makes one laugh, but let’s look closely at what clause 8 entails. Recently I have been advising on some transactions on behalf of willing buyers and sellers without notifying the bank, because the bank has, quite simply, refused the buyer’s application on financial grounds. I will leave this for my next blog post.

Antonio Flores Mortgages bank repossessions, foreclosure in spain, spanish mortgage loan, spanish mortgages

Revisited 20-11-2008

Being unable to keep up the mortgage repayments is indeed a difficult situation for many and the topic is now becoming an all too often familiar situation. Keeping up the repayments is the best way to avoid problems but since this is not always possible below are some recommendations I would use when dealing with your Spanish bank:

1. Be frank to the person in the bank you deal with and tell them about your problems, which are incidentally shared by thousands of persons. The branch manager (with whom almost invariably you will be now dealing with and from whom you should not expect much help), will either try to  a) make you feel guilty about the situation and say that the ball is in your court and that they cannot help you further and b) scare you out of all proportion by making you think that if they foreclose you will be chased around the world for this debt, now and in future, which is probably not true as they will keep the property and forget about you if there’s not a substantial nagative equity on the property. However, some banks use credit-search sites which they can link to other site within the EU, something which may have an adverse effect on your credit history back home.
2. Always answer the telephone if they are chasing you, even if it is to reassure them that you cannot pay (going silent is a bad sign and who knows, perhaps they have good news to communicate as we found out once). Branch managers are accountable to regional managers in respect of difficult cases and so they will show more willingness to help if they can contact us for updates.
3. Propose your lender an interest only payment for a minimum of 2 years. This will see your repayment greatly reduced.
4. Propose your lender that interest rates are revised every quarter as opposed to every 12 months. Bear in mind that rates in the EU zone are going down and it is very likely that by mid next year the Euribor should be in the 2% mark, according to many analysts (if they can still be trusted!). As an example, a €200,000 mortgage repayable in 25 years and it´s rate to be calculated in December could be reduced by €120 per month and up to €300 per month by mid next year.
5. Combine the above with a rental, even if it is below the market. On a property worth €200,000 you should be able to get a minimum of €6,000, around €500 per month.
6. It is now (time of writing) a great time to think of switching your mortgage to a multicurrency loan with the Yen as the main currency, given that the interest rates are very low (1%) and the Yen at one of the highest exchange rates in the last years in respect to most western currencies (EUR, GBP). This means that if it goes down you will end up paying a smaller installment and will owe much less. Not all banks offer this type of loans but it is worth considering as a  €1,000 loan would go down to around €500. However, be advised that this can be risky; if the Yen goes further up, you might end up having to pay more for your mortgage. You could also consider USD, Swiss Francs or even GB pounds sterling, which will see your exchange rate risk eliminated (although the rate is still not favourable to the pound).
7. Some banks will accept listening to a refinancing plan which is basically adding the unpaid balance to the principal of your loan and increasing your payments slightly to cover the extra amount.
8. If the bank is not willing to help, then coldly ask them when is it a good time to come to see them as you want to hand them over the keys to the property, the deeds and the utility bills. Of course this will not discharge you from the obligation of paying the debt but you will see a change of attitude in them immediately and will listen to proposals more attentively.
9. If realistically there is no possibility to continue paying and the lender is totally inflexible (which is bound to happen if you are behind by more than 3 payments) it is then crucial that an agreement is struck with the bank where they keep the property in payment of the debt. This is called ‘dacion en pago’ and it basically consists on formally handing over the deed to your home to your lender who agrees to release you from your mortgage. A lawyer may be required for this but it is certainly a good way to spend that last bit of money so that one’s name is not published on a debtors list in Spain (and in some cases like with the CAM bank, also published in other countries, including the UK).

Again, always remember that banks are not real estate agents nor wish to be and so foreclosing and repossessing is and should be the very last option for the bank.

Antonio Flores Property arrears in spain, bank repossessions, dacion en pago, delinquency in spain, en dacion de pago, foreclosure in spain, pay mortgage in spain, pay off mortgage in spain, spanish mortgage repayments