Home Repossessions in Spain: A Legal Perspective

[Stefan]

Hi, I mentioned a couple of months ago about extending my Spanish mortgage but the bank wanted 2,000 euros. Their bank manager is off ill and the person who my friend spoke to (She is a lawyer from Peru) so speaks fluent told her that is was not their problem and they had their own clients to deal with. I spoke to santader bank in London a nd they have tried to help but with little success. I have sent a number of bank statements, my business accounts etc to the bank of Valencia whO I bank with. My question is you said previuosly that there was a blob about not paying tax on extended mortgages and interset only mortgages, i could not find the blog but I just want to know shoukld I have to pay tax on another mortage again and will I have to pay Santander bank for leaving them? I have been with them for 5 years and don't think there is a tie in penalty now. Also, I do not know if it would be better to have a mortgage with just the banks normal interest rate or the Eurebor? is it still low? Many Thanks

[Lawbird Lawyer]

Dear Stefan,

Many queries.

I wrote a blog post in June last year on the points you raise:

Spanish Mortgages: No Tax on Term Extension or Switching to Interest-only -June 26th, 2009

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 ("novación").

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.

The Spanish Tax Office itself has replied to this query in a binding reply. Ther are no taxes to be paid on switching to interest-only or changing the reassesment date of your mortgage (Euribor rate revision), period. Another matter are the notary and land registry fees due on the mortgage loan amendment ("novación").

Regarding extending a mortgage loan a lender, by law, cannot charge lawfully more than 0,1% of the pending capital redemption. That is the maximum they can charge the borrower as commission.

Another matter -again- are the Notary and land registry fees borne which you will have to pay as it's natural, not your lender. They are specified in art 8.

Law2/1994 rules on this, as per my blog post herein above. Concretely in its art 10:

ArtÃ*culo 10. Comisión por ampliación del plazo del préstamo. (commission for extension of mortgage loan)

En las novaciones modificativas que tengan por objeto la ampliación del plazo del préstamo, la entidad acreedora no podrá percibir por comisión de modificación de condiciones más del 0,1 % de la cifra de capital pendiente de amortizar. (maximum of 0,1% of the amount pending redemption)

Regarding your last question, on whether it is more advisable that your mortgage loan is referred to the Euribor rate, as most Spanish mortgages are, or else to the "banks normal interest rate" I advise the former.

It is renowned that in view of the Euribor having hit a historical all-time low in 2010 banks are now trying to push alternative benchmark interest rates on new mortgage loans. You can be sure they are not doing this so borrowers benefit, quite the opposite, these new referral rates happen to be always higher than the Euribor. Bottom line, stick to Euribor rate if you you want to pay less.

And to close, you as a Consumer have a right to obtain always a full breakdown of expenses itemising exactly what you are being charged for.

Yours sincerely,
Raymundo LarraÃ*n Nesbitt

[Stefan]

Hi Raymundo

Thanks alot for your clear explanation. That has been very helpfu. There is one more querie if I may ask and that is If I leave Sanatnder to go to the Bank of Valencia (As Santander do not offer mortgages with the eurebor) will I have to pay taxes if I remortgage with another bank or only avoid them if I stay and extend lenght of term with current lender?

Many Thanks Again

Stefan

[Lawbird Lawyer]

You are welcome Stefan.

Many banks are now offering clients to switch lenders and they are the ones that pay for everything, so it's gratis for you. Are you aware of such offers? Why don't you talk to an experienced mortgage broker on this? They can point you in the right direction.

If you remortgage with another bank you will of course be expected to pay tax, yes. That's why you must run thorugh the numbers carefully and verify it interests you to jump ship.

Regards,
Raymundo LarraÃ*n Nesbitt

[mr singh]

Dear Stefan,
what is the current 2010 stance/policy of Santandar bank on persuing UK lenders who default on spanish mortgage? I am upto date but in 3 months will not be able to keep up payments.The property on a golf resort should just about the value of the mortgage .I was going to let the bank have 3 month advance notice and ask them to cancell mortgage and take the property back as the they can still i think break even.What do you think?

[kelly]

we have been offered a dacion en pago on our property, we are now awiting the study.
last september we had a re mortgage
our bank valued our property last september at 328,000 euros which to me is way overpriced we have a mrtgage of 175,00 and we are hoping the dacion will cover this. I have been told that by law in spain banks cannot drop the valuation of a property by less than 20% in the same year is this correct? i would really like some advice on this
thanks

[Lawbird Lawyer]

Dear Sir,

I'm sorry, I do not know to what law you are referring to.

Yours faithfully,

[Lawbird Lawyer]

Dear Sir,

You have made the mistake of not hiring a lawyer to hand over the keys to your lender through a formal procedure known as "dación en pago". This procedure is explained in my articles:

The Dación en Pago Explained - 28th March 2009

The Dacion en Pago Procedure - 21st November 2008

I always recommend everyone to hire a Spanish lawyer to ensure the mortgage liability is discharged in full, which isn't your case.

You have made the same mistake as these other borrowers:

Can we be chased by the bank after arranging a Dacion en Pago? - by boabster

Property was bargained away and we are being chased for the shortfall. Please help!
Wendy

The above people thought or were mislead into thinking they were doing a dación en pago. They in fact gave POA to their banks who sold the properties on at BMV. The outstanding debt is till owed to the bank and the liability is personal and unlimited meaning the lender can pursue in the future the borrowers for the shortfall. Or they can simply sell on the debt to some debt-collecting agency in the homecountry of the defaulters.

To stop the bank from pursuing you further you would have to sign a deed at a Notary where the debt is released in exchange of you paying what's owed.

Yours sincerely,
Raymundo LarraÃ*n Nesbitt

[Nigel]

Thanks for the useful info and hopefully you can comment on the following.

I am in the process of being repossessed by a bank on Gibraltar for a house I own and that is registered here in Spain.

Unfortunately I now have no way of paying the mortgage, which is c30.000 in arrears and with negative equity currently running around €250.000.

I have no assets here or elsewhere.

My only option, it seems, is to declare myself bankrupt. Is this a possibiity in Spain? If not I won´t be able to live with the constant chasing from banks, lawyers, debt recovery agencies etc as you have noted in many posts above. In that case i will mover back to the UK, declare myself bankrupt there and be discharged after 2 years. A bad credit file would be a good thing after the current nightmare.

[Lawbird Lawyer]

Dear Nigel,

Filing for individual bankruptcy is possible following Spain's Insolvency Act of 2003.

However this is seldomly advisable for individuals.

First of all it is devised for affluent individuals, which helps explain why so few families in Spain have applied for it (couple of hundreds only).

Secondly you will be expected to pay in the region of €20,000 lump sum for it to be considered which obvioulsy defeats the whole purpose of "filing for bankruptcy" for most individuals. If they had €20,000 to spare they would logically not be in need to file for it.

Spain's lacklustered Insolvency Act has been undergoing heavy criticism from lawyers and judges and was partially amended in 2009 and will be amended soon yet again.

So bottom line, we do not recommend you to follow this option in Spain.

Yours faithfully,
Raymundo LarraÃ*n Nesbitt