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Thread: Home Repossessions in Spain: A Legal Perspective

  1. #101
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    I'm glad I was of help to you Maggie.

    That is an advantage that few vendors spot.

    You can actually offset the loss of lowering significantly the price of your Spanish property as you are being paid in hard currency (Euros) which you can then change at a superb exchange rate over to GBP. So you can actually walk out even or even make a tidy profit on the sale.

    Kind regards,
    Raymundo Larraín Nesbitt

  2. #102
    Jon
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    Default Bank Repossessions in Spain: A Legal Perspective

    I have a friend who has/ had 2 property’s in Spain both of these has not had any mortgage payment made for over 2 years now, They have tried to sell one of the property’s to clear a large amount of the outstanding mortgage but the bank blocked the sale saying all or nothing. The second property was never finished by the developer as they went bust taking the up front money with them.

    There has been very little communication from the bank regarding the outstanding debts. Reading your post’s this seems a bit strange when you consider the time that has past since any payment has been made.

    You say that the Spanish banks will take action in the UK to reclaim any outstanding amount, this now hits another point. My friend’s house in the UK was also in mortgage arrears and was repossessed middle of last year. Both her and her partner have separated financial problems being one of the causes for the separation

    Nether my friend or her ex partner have any valuable belongings, she is in rented accommodation and her partner is now living with his mother. There is outstanding debt in the UK for the repossessed property plus additional unsecured debts that where run up.

    Nether one of them shot of a lottery win or similar are or will be in a position to make repayments to ether the British or Spanish creditors.

    The question is how long can the proceedings go on for, what happens if payment can not be meet??

    Thanks
    Jon

  3. #103
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    Dear Sir,

    The statutory limit is 20 years. However this is a prescription limit.

    Meaning that if the lender at anytime within those 20 years (Art 1964 SCC) sends you a registered letter demanding payment of the debt, or chases you through the law courts, the clock start ticking again (Art 1973 SCC).

    And they will do this again and again as they are relentless. They hire law firms that make sure the 20-year limit is never overrun.

    On my first job as a lawyer I was chasing up mortgage debts from 1987! This is done because over your lifetime you may come into money as it's foreseeable you will inherit at some point or other in the future, at least most people do statistically.

    Some people learn to live without having anything under their name so as to avoid them. In any case no-one can jail you for having debts in Spain.

    Yours faithfully,

  4. #104
    Jon
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    Default Bank Repossessions in Spain: A Legal Perspective

    Thanks for your help your info is very helpfull.
    One other thing that concerns me is what would happen if i was to treat my friend to a holiday in spain, is the fact that a debt and court procedings are outstanding going to be picked up at pass port control ? would she be taken to the nearest police station / court to answer questions on the matter?
    Thanks again Jon

  5. #105
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    Dear Jon,

    You are welcome.

    No, that's exactly why I added the line that you can no longer be imprisoned in Spain because of running up debts.

    Your friend can book a flight and come over to Spain to enjoy the sunshine. She won't have any problems at customs nor will she be dragged off to the nearest Police station.

    Yours faithfully,

  6. #106
    mea kerr
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    Default Bank Repossessions in Spain: A Legal Perspective

    We are now 4 payments behind on our mortgage in the Canaries. The bank has said they need at least 2 payments to stop the file going to the legal dept. We have struggled with the mortgage for just over a year. We have been in contact with the bank via e-mail throughout this, often telling them how much and when the money will arrive. The problem is we stopped paying communidad to try and keep up the mortgage payments, we now also owe €5000 communidad and cannot meet any payments with the bank. If the bank refuse to let us hand the keys back what is the best course of action we should take? Kind Regards

  7. #107
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    Dear Ms Kerr,

    I copy you in my article:


    Advice to Struggling Mortgage Borrowers in Spain -14th April 2010 Levante Lifesyle Magazine

    http://www.eyeonspain.com/forums/posts-long-5402.aspx - 3rd September 2008 Eye on Spain


    Advice to Struggling Mortgage Borrowers in Spain

    Raymundo Larraín Nesbitt
    3rd February 2010

    Introduction

    Following-up on my article of 2008 on Bank Repossessions in Spain ex-pat landlords are still struggling to remain afloat in 2010.

    It is important to clarify that a property on being repossessed still belongs to you, not to the lender. You are the one that appears lodged at the land registry as the title owner. On defaulting a mortgage loan the debt goes personally against you. You will be held liable with all your assets, both now and in the future, following art 1911 of the Spanish Civil Code. This is a General legal priniciple in Spanish law.- Personal and Unlimited Liability.

    The above has huge legal implications that most foreign borrowers were not aware of at the time of signing their Spanish mortgages. It means that if the property has slipped into negative equity (i.e. house price fall, or after a repossession procedure) then the outstanding balance is owed by yourself. This debt is pursuable even in your home country against your assets held abroad. As explained in my article on Spanish repossessions, if no-one bids for the property in the public auction the lender will be forced to withhold it for 50% of its appraisal value. Meaning you will owe the outstanding balance plus the repossession expenses incurred (lender’s lawyer’s fees as well as court agent’s fees). The latter will be added to your debt. Post credit crunch it is renowned that professional bidders have vanished into thin air as credit is hard to come by. Bidders are required to lodge before a law court auctioning off the property 30% of the appraisal value. Given the current grim financial environment we can safely assume that in most cases properties being repossessed and auctioned off will end up in lender’s property portfolio. Which explains why lenders have been busy incorporating real estate divisions to get rid of their excess property stock.

    Spanish banks can and are already chasing-up debts in the UK or elsewhere against any assets you may hold in your home country. They may outsource this work to local UK law firms or else debt-collecting agencies or else simply sell the non-performing mortgage to specialised companies for a fraction of the nominal value. The latter will then chase you. Lenders will not hesitate to send you threatening letters with the hope of avoiding a protracted repossession procedure.

    In practice, it will fall down to the amounts owed. It's true that this is often an expensive process for Spanish lenders so they may be reluctant to follow it. Bear in mind the default interest rates agreed within your Mortgage deed normally range between 15-30% compound interest p.a. (not simple interest!). So the debt will mount exponentially over time very quickly. Walking away from your Spanish debt is not an option for most people as it will come later on to haunt you in life. Not to mention that your credit rating in Experian and other credit-rating agencies will be ruined.

    Some borrowers in arrears, unable to meet their financial commitments, have simply handed over the keys to their lenders in the hope this would discharge them from their debt liability. Crass error. In Spain to hand over the keys to the lender it must be done through a formal procedure at a Notary public which involves signing a deed relinquishing ownership in exchange of being fully discharged from the mortgage liability. This is known in Spanish as “Dación en Pago de Deuda”. Spanish banks are very surprised at this new phenomenon dubbed “jingle mail” and have been caught completely off-guard because they are used to dealing with Spanish borrowers who no matter what service their mortgage on time even if they have to live on bread and butter. Whereas many foreigners have been walking away as if this was the US thinking no further legal consequences would arise from turning their backs to the problem.

    The ability of a solicitor to act on your behalf on this matter is honestly very limited. The ongoing credit crunch doesn’t make it any easier as Spanish banks themselves are increasingly struggling to secure finance lines from abroad. The Bank of Spain is bound to pass -again- more stringent regulation in 2010 forcing Spanish lenders to increase provisions set aside for defaulted loans on dwellings from 20% to 30% after one year in their balance sheet. In my opinion this new regulation will have as collateral victims foreign struggling mortgage borrowers as Spanish banks will from now onwards grow increasingly wary of caving in and accepting a dación en pago de deuda (handing over the keys in exchange of the debt).

    Historical low interest rates have held at bay repossessions in Spain after they had reached an all-time high in 2008 when the Euribor rate (to which most Spanish mortgages are referred to) peaked on October 2008. If interest rates are once again raised later on in 2010, as experts forecast, in the hope of a market recovery we may face –yet again– a new tidal wave of bank repossessions.


    Tips to struggling mortgage borrowers:



    1. Switching to interest-only. This can be arranged whilst the property is put up for sale or just to weather off the storm meanwhile. This option has become increasingly difficult post credit crunch as Spanish banks seldom grant interest-only and if they do, it's really just as a teaser for two years.

    2. Extending mortgage repayments an additional number of years. The drawback is that on doing so the amount of interests you pay on the long run is increased dramatically. So it's only an option for those who are left with no other really. The Government is now allowing this change free of charge to struggling mortgage borrowers providing they are resident and the property is their permanent dwelling. Borrowers will not pay for Notary or Land Registry fees on following it.

    3. "Dación en pago". This is basically handing over the keys to the lender and signing a deed at the Notary whereby the lender commits itself not to chase you for the debt and consider it discharged for good. Two things are required, the property must not be in negative equity and ideally there should be, as rule-of-thumb, 20% equity so as to offset the lenders’ expenses on taking over the property. It doesn’t matter if you are in arrears, what does matter is that the repossession procedure must not have been initiated by the lender. This is harder than people think because due to the easy credit of the last years the Loan-To-Value of properties was really high, too high in fact, hence all the bank related problems we keep reading with massive writing-offs. People borrowed far too much and now their properties may have fallen below what they borrowed against them. Should this happen the lender will be very reluctant to agree to this "dación en pago de deuda" because the collateral now will have few equity.

    4. Selling the property as a distressed asset. If you have already run through the numbers and you are convinced that you will no longer be able to service your mortgage, rather than defaulting and being repossessed, you should very seriously consider selling the property as a distressed asset. The catch again is that the property should not be in negative equity. The more it is the least likelihood there will be anyone interested in it as they in turn are regarding the purchase as an investment and the numbers need to stack up to make it worthwhile for them.

    5. Applying for debt consolidation. There are many financial companies offering this service. Basically what they do is group all your debts with different lenders (from credit cards, your mortgage loan, personal loans etc) with only one lender who then extends the loan repayments. The consequence this has is that your monthly repayments are cut down significantly making them more affordable. However the drawback once again is that on extending the financial commitments you will pay more interest on the long run.


    Contd. below:
    Last edited by Lawbird Lawyer; 06-07-2010 at 04:01 PM.

  8. #108
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    6. Swapping over the mortgage to a new lender. Many lenders are now offering to take on existing mortgages paying all the transfer expenses. These lenders normally require the property was bought prior to 2003. In addition, for those who hold collar clauses, swapping over to another lender offers the opportunity to get rid of these bothersome clauses and take advantage of the low interest rates.


    In Conclusion

    My advice is to draw a red line on a repossession procedure. You should try to avoid this scenario at all costs. As the debt goes personally against the borrower in Spain, you may live a nightmare with debt-collecting agencies, banks or lawyers knocking at your door for years to come. As the compound default interest is fairly high this will be tagged on to what you already owe creating a debt spiral.

    Please note the information provided in the above article is of general interest only and is not to be construed or intended as substitute for professional legal advice.


    Related articles:

    Spanish Mortgages: No Tax on Term Extension or Swapping to Interest only – 26th June 2009

    Spain’s Senate Petitions Government to Suppress "Floor Clauses" - 23rd of September 2009

    10 Common Abusive Clauses in Spanish Mortgage Loans – 4th of June 2009

    The Dación en Pago Explained -28th March 2009

    Sterling Plunge: Not All Doom and Gloom -4th January 2009

    Steep Drop in Euribor Translates into Cheaper Mortgages -31st December 2008

    The Dacion en Pago Procedure – 21st November 2009

    Cannot Keep Up Repayments on your Spanish Mortgage? Not All is Lost. -9th November 2008

    What are my options if I have fallen in arrears on my Spanish mortgage? -18th November 2007

    We are in 3 months of mortgage arrears with a Spanish bank for two properties the developer have not completed properly. What options do we have? -16th September 2007



    Lawbird Legal Services is a law firm with broad experience in Litigation, Corporate and Spanish Property Law.


    Yours faithfully,
    Raymundo Larraín Nesbitt
    Last edited by Lawbird Lawyer; 06-07-2010 at 04:00 PM.

  9. #109
    mrs lewis
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    Default Bank Repossessions in Spain: A Legal Perspective

    We are currently having our home repossessed in spain we have children. Can we legally be evicted.
    many thanks

  10. #110
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    Dear Madam,

    That will not thwart the procedure.

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