Home Repossessions in Spain: A Legal Perspective

[Paul]

I have tried since Feb to tell my Spanish bank we are in trouble - my tenants left and we had a lot of repairs/debts to pay. They would not reply to emails or calls and eventually I had a call from IPP Global in May who advised me to go for a Dacion En Pago. I paid them €1500 (on credit card) initial deposit (total will be €3500) and nothing happened. I have chased them to progress the Dacion as I was trying to keep my mortgage up to date by using my credit card in UK and sending most of my wage to service my mortgage in Spain. Last week my Spanish bank told me they would repossess my Spanish and English houses as I had defaulted - I thought the Dacion had been instigated after 3 months but IPP were still not moving. I have maxed out my credit cards and I sold my car to pay last months mortgage as I am terrified of losing my house in England. I still have no idea if the Dacion will proceed, I owe community fees and on advice I paid for a re-decoration to try and get the place rented again. I am at the limit of what I can cope with, it seems that in Spain people prosper only due to others misfortune. I have done everything I could to try to get out of this and save my home in UK - now it seems I am to lose the lot - what would you advise now?

[Lawbird Lawyer]

Dear Sir or Madam

I would need to have a look at it.

In any case if you've read the article that starts off this very thread on Bank Repossessions in Spain I explain that if no one bids in the Public auction (something common nowadays) the lender keeps the property for 50% of the appraisal value.

So a property worth 3 million euros in the market is valued for exmaple specifically for the auction at 2 million and the bank gets to keep it for 50% of said value, that is 1 million euros. It will then sell it on to some lucky buyer for whatever price is can fetch, whether 1 million or 3 million being allowed to keep it all, yes.

Lenders nowadays post repossession on adjudicating themselves the properties are piling them into purpose vehicles within the enxt 20 days which are really their own real estate agencies. They want to offload them from their balance sheeets as it weighs down their credit ratings. More on this here:

Pssst! Looking For Cheap Spanish Property? - 5th October 2009

The appraisal value of a property for auction purposes is always considerably lower than its "real" market value. And as I write, if no one bids the banks keeps it at 50% of this underrated value. So you can easily end up in negative equity with a Spanish lender post repossession.

In the above example the break even point is one million euros. If your mortgage loan was above 1 million euros you still owe money to the bank despite them having sold it for 3 million euros as the value by which they adjudicated themselves the property was only 1 million euors which would be below the outstanding mortgage loan.

The other day we were in a Public Auction for a prime beach front property (villa) in Puerto Banús (Marbella) which realistically would have today a market value of 4 - 4,5 million euros. The auction started off at 1,2 million and ended at 1.7 million euros; a bargain for such a property if you have the deep pockets to make even more money. That property can be sold on the following day making a huge profit even nowadays.

Spanish Property Auctions: An Insider’s View -25th May 2010

Sincerely
Raymundo LarraÃ*n Nesbitt

[Lawbird Lawyer]

Hi Paul

You are the third person that contacts us to tell us that IPP Global charged them 1,500€ and nothing happened. The other cases were another dación en pago and a mortgage change in the terms and conditions (novación) that did not happen either.

Isn't IPP GLobal a Real Estate Agency to the best of my knowledge?

You would need to query them what they've done on your behalf or whom they've hired or outsourced work over to. We cannot speak for them. I suggest you contact them on your matter urgently.

What I can tell you is that the dación en pago is a fast procedure if your lender accepts it. It takes on average 1-3 months.

As we've written in detail over the last year, your property needs at least 30 - 40% positive equity for a lender to accept it nowadys. You cannot force a Spanish lender to accept a dacion en pago, it's at their own discretion as it entails huge costs for them to accept the keys from you (they have to pay all taxes and associated expenses besides the mantainance of the property).

Only because you pay someone for a dación en pago does not imply they will obtain it.

Which is why our law firm always recommends that prior to hiring (and paying) us the client obtains the green light from their lender and then we take over arranging the negotiation, drafting and signing of the deed before a Notary relinquishing ownership. Otherwise you are just throwing away good money after bad.

You can read a detailed blog post here with abundant links on the matter:

Bank of Spain Raises Real Estate Provisions Set Aside by Lenders -27th May 2010

The truth is that lenders are no longer accepting properties for a dación en pago purchased, on average, after 2005 because of the fall in value of real estate assets as the blog post above explains in detail.

Yours faithfully

[Denis]

Hi. I am a gaurantor for 2 houses being developed in Majorca, this started around 4 years ago. My sister is on the deeds with me as a gaurantor, but i have just learnt that in case of repossession my UK assets are also liable via this thread, which i was told otherwise at the time. The numbers are good, its just we are unable to complete the houses. The mortgage and recent valuation gives €275K equity, but €100k needs to be spent to finish them and that is the stumbling block. There is also collaterol on my sisters property of €150k equity. So there is enough there if come repossesion before they reach me.
We have an interest only mortgage that expires in Janaury, which is when I see the big problem arising, as at the moment we have not fallen behind.

There are plenty of persons wanting to rent them, but as they are unfinished we are stuck.

If we are unable to find the funds to complete and the worst happens, would selling my UK property or handing over to a family member be wise before the worst happens.

We are also considering a 'dacion en pago' again if worst happens and with the equity I am hoping maybe accepted.

My main concern is my UK property and what I should do to avoid this being touched.

Thank you in advance.

[Lawbird Lawyer]

Hi Denis

Well I'm glad that by reading this forum, specifically this thread, it is dawning on people what they are up against before they sign nonchalantly as guarantors on mortgage loans. I always advise not to sign as guarantor even if it's for a family member or your best friend. If they fail to pay YOU will be up next in the lender's roster with ALL your assets, both now and in the future. And this is hapenning everyday of the week post credit crunch.

The problem with selling up your UK assets before your creditors come after you is that in Spain you could be criminally prosecuted for this. It is called in Spanish "alzamiento de bienes" and aims to waive the personal unlimited liability enshrined in Art 1911 of the SCC.

I'm fairly sure, without being an expert in U.K. law, that it works pretty much the same in the U.K.

In Spain you cannot be jailed for bad debts.

But you can certainly be jailed if you purposely decapitalise your pool of assets with the sole intent of deceitfully attempt to waive your financial commitments. i.e. repayment of a mortgage loan.

You may want to think twice before doing this. If you are going to take this route seek legal advice from a UK solicitor.

As to your other option, a dación en pago, it is the solution I always recommend only as a last resort to a borrower/guarantor. On following it you can walk away and start off with a clean slate. Your credit-rating will not be tarnished and you will have successfully waived all liability. Let us know if we can represent you in a dación. We charge a flat fee of €1,200 plus VAT.

The only problem with a dación is that Spanish lenders are now in 2010 even more reluctant than ever to accept it following what I write in other posts on this thread.

I wish you good luck and let us know if we can assist you with the dación option should you require it.

Sincerely
Raymundo LarraÃ*n Nesbitt

[Gary]

Around 2 years ago i stopped paying my mortgage in Spain even though i could afford it as i could see what was happening with the ecconomy. I have tried many times to discuss where we go from here in order to settle the debt with the bank but they refuse to talk. We then found the banks lawyers who are Allen & Overy in London and my lawyers have written to them also on many occassions without a reply.
What is wrong with these people? what are they waiting for some kind of divine inspiration from the madonna!!
Has at this point the bank officially repossessed the property or not? can someone tell me please?
I also noticed that there is little speak of community charges - if the borrower defaults and the banks repossess who pays the charges as i am being chased for unpaid fees and have told the community to go to the bank as the property is no longer mine.
I'm interested to hear how this one works.

[Lawbird Lawyer]

Hi Gary

Madonnas aside, you will be held liable for the outstanding community fees as you are still the registered owner until the property is effectively repossessed by your lender and becomes the new owner.

Bold move you've taken on voluntarily defaulting on a Spanish mortgage loan.

You are aware, of course, the liability is personal and unlimited on doing so with all your assets, both now and in the future?

These procedures in Spain are taking on average between 1-3 years depending on where the property is located (how clogged law courts are).

Sincerely
Raymundo LarraÃ*n Nesbitt

[Gary]

Hi Raymundo,
Many thanks for your speedy reply you don't know how refreshing it is.
Yes it was a bold move by me to stop paying the mortgage but why keep paying a mortgage until you have absolutely nothing left in the bank or collateral to deal with when you know that ultimately this is where your going to end up! If theres no one to rent the property and your circumstances change in your own country why carry on paying! I really feel for the guy who sold his car and maxed out on his credit cards.....that must really hurt!
But shurely the banks and Spanish government should shoulder some of these costs for behaving the way they have i.e. Paper bag money, Black money, government officials taking back handed money, illegal planning permission being granted, banks over valueing property by absolutely ridiculous ammounts, Spanish developers promising rental incomes that were never achievable ect the list goes on.
I have had my lawyer write to the bank to ask for a value to settle immediately but in 18 months nothing, yet i'm still responsible for paying community charges ect which is wasting my cash i have put asside to settle with the bank. It appears that the banks in Spain are a law unto themselves and just about everyone in Spain is on the payroll.
This is the worst deal i have done and there will never be a day that goes by where for 10 mins i don't hate myself for being so gullable. £80k of my kids inheritance down the drain and still counting. Viva Espania..... my arse!!

[Lawbird Lawyer]

You are welcome.

Hmmm, following your post everybody is to blame it would seem other than yourself Gary. Really?

The fact is that turning back the clock only 4 years ago every Tom, Dick and Harry were raking in 20% capital appreciation on their properties, at least on paper, year after year after year.

It took a great deal of self-discipline to avoid falling for the hype when newspapers, magazines, tv etc kept banging all day long how much house prices were rising every year and just how rich and smart your next door neighbour was becoming with exotic Cape Verde property and releasing equity from his home. Remember self-certified loans known popularly as liar-loans?

People almost thought there was something wrong with you if you did not indebt yourself up to your eyeballs in cheap credit to live "the great life" to which everyone seemed to be entitled. Banks almost threw money at your face when you walked in. Cheap credit is like crack, very addictive and should carry a warning.

4 years on we are back to reality when only those who make a certain income p.a. can afford certain lifestyles with overseas properties. Unfortunately for some, such as yourself, the consequences of your acts will come back to haunt you for the rest of your life.

If after you are repossessed there's a shortfall your lender will pursue you abroad and tag on default compoud interest rate pa. You may not hear anything from them in the next decade thinking you are safe when some day out-of-the-blue you will receive a lawyer's letter or a phone call from a debt-collecting agency reminding you of your past life.

Property moves in cycles. In Spain these take on average 15 years from peak to through. The last cycle was from 1993 till 2007. Now that everyone is, to put it mildly, complaining on the market it is the best time to buy in my opinion. It is now when people will snatch properties at knockdown prices and will be admired for their financial savvy in years to come. Modern Society has a fixation for money and those who know how to make it. And making money is all about having common sense (and guts).

Next time round when you feel tempted to step in when everyone seems to be overboard on property hype -again-, just don't.

Buy when everyone is scared and the uncertainty is tangible, you won't regret it. You may want to read our article on buying off-plan and avoiding the common pitfalls:

Buying Property In Spain Tips Part II. Off-Plan Property - 18th April 2010

Any way I don't want to sound like I'm patronising you in anyway which is easy in hindsight and terribly rude. We are all adults and are entitled to our fair share of mistakes in life. You only live once after all.

[GeeGee]

I have a question that I would very much like to know the answer to.

All the information I've seen about having a property repossessed talks about negative equity.... What happens if that doesn't apply? What happens if the price of an auctioned property is higher than the amount still owed to the bank? Are the banks obliged to hand over the excess amount to the ex-owner or do they get to keep it as a 'tip'?