Home Repossessions in Spain: A Legal Perspective

[Ebay Malc]

Thankyou for this useful and informative article - it's been a great help to me and my family. Two questions for you concerning my own situation after I briefly explain the circumstances. I purchased two properties here in Spain with mortgages obtained from BBVA. The first property (in 2004) was a house which currently has €87,000 outstanding. The second property is a bar / café (in 2005) currently with €33,000 outstanding. A loan taken out 3 years ago from BBVA has €2,600 outstanding.
I have missed one payment of both morgages due at the end of May. I am no longer able to pay anymore mortgage repayments. Question 1. Does your explanation about repossession for houses/residences apply to commercial properties such as my second mortgage on the bar/café and is the same timescale applicable. Question 2. Are the contents of the house/residence and bar such as clothing, personal computers, furniture, curtains, refrigerators etc siezed as assets when repossession takes place or can I remove/dispose of them prior to the repossession and what is the last time I will be given an opportunity to remove them? (Day before the Police/Locksmith arrive or when the hammer falls?)
Thanks again for a great article
Malc

[Lawbird Lawyer]

Dear Sir,

You are welcome. I'm glad it helped you out; I wrote it with that purpose on mind as I was getting an average of 5 queries a day on this matter back in 2007.

In reply to your queries, it will follow the same procedure with the same approximate timescales.

You can remove all your personal belongings prior to repossession, yes.

You will be notified formally (recorded delivery) on the exact date and time on when the court's bailiff, the lender's procurador and police officers will come to have you physically removed from the property. By law this must be done giving notice to the borrower of at least 20 day's prior to the day scheduled to hold the Public auction (Art 667 LEC). They don't just come knocking at your door in the middle of the night to throw you out!

In fact, in some cases (minors of age) exceptionally they are kind enough to allow you an extra week or two to sort yourself out before taking effective possession of the property.

Repossession takes fairly long mind you. On average spanning between 1 to 2 years. In some cases taking even longer. This will depend on the workload of the law court dealing with your repossession. The more clogged, as they usually are, the longer it will take.

Yours faithfully,
Raymundo LarraÃ*n Nesbitt

[Tania]

Hi Raymundo

Where is your office based?
Also do you deal with clients who are intrested in purchasing a property?
I see by the above messages that you offer alot of advice on problems revolved around repossesions etc?
We are actually looking to buy a property on the coast of Marbella.
Regards
Tania

[Lawbird Lawyer]

Hi Tania,

Our law firm is located in Marbella although we act nationwide.

We offer a broad range of legal services, ranging from Corporate law to litigation including conveyancing of course. You have a full list of our services here:

Lawbird's Legal Services

This thread is devoted only to bank repossession related queries, that's why it's so biased towards the subject. This thread picks off on an article I wrote back in 2007 on Bank Repossessions in Spain.

I take the opportunity to offer you our Conveyance Service should you be interested.

You may want to read my articles on the matter:

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

• Buying Property In Spain Tips Part I. Buying Resale: Avoiding the Pitfalls – 31st January 2010

Our Conveyance Service already includes obtaining a two NIE numbers on behalf of our clients at no extra charge (the normal fee is €165 for each one, so its €330 you save for two people). Three NIEs or more will be charged at the ongoing rate. A NIE number is required by the Spanish Tax Office to file taxes. Without a NIE number completion on a property before a Notary Public is not possible. Obtaining a NIE number is taking less than 2 weeks through us.

Our Conveyance Service includes the following:


1. Complete all necessary searches on the legal status of the property and the developer/vendor, informing the buyer/s of any issues discovered that may influence the decision or conditions of the purchase.

2. Liaise and agree with vendor/s and/or lawyers in respect of terms and conditions of the purchase, ensuring compliance with current laws. In the event that the vendors are non-resident in Spain, a lawyer ensures that any amount paid prior to completion is lodged safely with a resident party, preferably the vendor's lawyer's account.

3. Make preparations at the Notary Public for completion of the purchase or any further preparations required relating to the purchase such as preparation of Powers of Attorney for individuals abroad (duly legalised and translated) which give authority to a physical person/s to act on behalf of the buyers.

4. Assist in the completion process and ensure title deeds are properly registered in the appropriate local Land Registry, and that the property(ies) is/are free from all charges and encumbrances, free from occupants and tenants, as well as payment of the relevant taxes associated with the purchase.

5. Assist in locating, negotiating and obtaining a mortgage loan to finance the purchase of the property. The obtaining of the mortgage loan may be in the form of an approval in principle prior to the signing of the private purchase contract and is understood without prejudice to any other mortgage facility provided by the developer or the vendor.

6. Obtain the NIE number (Número de Identificación de Extranjeros), or Foreigner’s Identification Tax Number.

7.- At your request we can also include as part of our legal service Title Insurance to cover unforeseen events for a further €294,34 covering the next 20 years.


Please note we offer additional optional services such as setting up utilities (water & electricity) on your behalf, drawing up a will for your Spanish assets or fiscal representation to file the annual Wealth & Income tax in Spain.

On owning property in Spain you are required to file and pay fours taxes, two national (Wealth & Income tax) and two local taxes which can be arranged through a direct debit to your Spanish bank account (IBI tax & garbage collection tax) on an annual basis. Rubbish tax is every six months.

Wealth tax has been abolished as from the 1st January 2008. However, Wealth tax for 2007 is still liable and has to be paid in 2008.

We charge 1% of the value of the property subject to a minimum legal fee of €1,300 plus 18% VAT.

Please be advised that additional legal services not included in the above quoted conveyance fees are the following (plus VAT):

1.- Arranging the set up of utilities (water & electricity) €210.

2.- Drafting of each Spanish Will €180.

3.- Fiscal representation to calculate, file & pay Wealth & Income tax €85 per person, per year.

If you have any queries on the above you can always contact me.

Yours sincerely,
Raymundo LarraÃ*n Nesbitt

[Elaine]

Lawbird - I'm so glad I found your site.
My husband and I bought an Apartment in an Aparthotel complex in Vera. The management company have breached their contract for payment of annual rental income to us, as owners, because they are loosing money. They want a new contract in which they share the profit (if they make one) with owners rather than an agreed amount. No penalties to owners if they make a loss - other than NO payments for allowing the management company use of the apartment for 52 weeks per year.

We are at financial loss because of loss of 4300 euro of annual income, and have either to 1) default on mortgage, leave keys with management comapny and send our set to the bank? 2) renegotiate to interest only mortgage - but are being quoted in region of 2000 euro all told for various 'expenses' & costs - this being nearly 3 months mortgage 3) try to sell, whilst continuing to fund a mortgage we cannot afford now our circumstances have changed here in the UK as well as in Spain.

What would you advise?, we and some of the other owners in this position feel that the Bank, lawyers and management company concerned are colluding?

We bought as an investment, an apartment in a manged commercial complex, which is let out by a management company clearly in financial difficulty and now not able to pay rent according to the contract to the owners.

We want OUT, like so many others

Help!!

[Lawbird Lawyer]

Tricky questions Elaine.

In my latest article on buying off-plan published on this website I recommend the following:


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

8.If you are Considering Buy-to-Let, Make Sure the Local Laws Allow This

If you are buying with a view to rent the property out, either as short or long-term, make sure the region of Spain in which you are buying allows for this. Some regions, i.e. Balearic Islands, have stringent regulations whereby a special licence is required to rent. Failure to comply will result in the Town Hall fining you. Disgruntled neighbours always make apt whistle-blowers, so be warned. Other regions in Spain, such as AndalucÃ*a, do not require letting licences but do have their own regulation in place on letting out property. i.e. Decree 218/2005. And as a final word of caution, unless your property is in a prime location, do not rely on the let to offset the mortgage repayments.

Without attempting to patronise you, when you invest in life you can either reap a reward or make a loss. It's all about risk management. You must be ready to accept it.

Aparthotel complexs have this problem normally.- the not-so-guaranteed rentals. Witha glut of property available after a decade of over construction the competition to sell or let is fearsome in Spain.

Investments where, for example, the break even is after 30 week's a year of occupation may be dangerous to the pocket of any aspiring would-be-investor.

My advice is not to rely on rental income to offset mortgage repayments unless the property is regarded objectively as prime. Rentals should be regarded as a bonus always not as means to mitigate the monthly mortgage outgoings. And prime properties are frankly hard to come by i.e. beachfront gated luxury complex in Mallorca.

In your case owners should sue this company if you believe they are in breach of contract. An amendment that clearly is biased towards them should not be accepted (why should you anyway?) ex pacta sunt servanda.

If you are in 3 month's arrears with your lenders, as per my article that starts off this very thread, your lender may initiate a repossession procedure against you.

If you can swap over to interest-only you might as well do it to weather off the storm and meanwhile sell on the property to someone else. The amount you are being quoted is standard.

If you are in positive equity territory (substantially I might add, circa 20-30%) you may want to contemplate handing back the keys to your lender. You can read further in my articles:

Advice to Struggling Mortgage Borrowers – 3rd February 2010

The Dación en Pago Explained – 28th March 2009

The Dación en Pago Procedure - 21st November 2008

If you default on a Spanish mortgage the consequences are very serious as the liability you have will be personal and unlimited, with all your assets both now and in the future. There's no prison sentence for debts in Spain, don't worry.

But the consequences, both legal and financial, will last for years if not decades even in your home country. Please read carefully my above articles and come back here with any queries you may have.

My advise is always to draw a red line on a Spanish repossession. If there's anything at all you can do to avoid it, please do so for yours and your families' sake.

Too many people have been on denial regarding Spanish banks chasing you abroad. It's happened, its hapenning and will happen.

Spanish banks can sell on entire portfolios of NPL to local debt-collecting agencies who will do the chasing up. But they first need a ruling in Spain which must be final and that may take some time before they are able to pursue you abroad against your assets ex EU Directive 44/2001.

Spanish Justice is very slow, we all know that, but its wheels churn relentlessly and will grind many who did not heed proper advice.

Taking on a Spanish mortgage is no joke and you must be very sure of what you are doing and what are the legal consequences for you and your whole family on defaulting as you may be putting your entire financial future at risk.

Yours sincerely,
Raymundo LarraÃ*n Nesbitt

[Rob in Madrid]

'In some cases taking even longer. This will depend on the workload of the law court dealing with your repossession. The more clogged, as they usually are, the longer it will take'

It is the exact same situation in America it's taking longer and longer for houses to be repossessed, as the crisis grinds on the stigma of walking away from your house is lessening more and more people are will to do a strategic default. That is they are perfectly capable of paying their mortgage but choose not to, live in the house rent free for 2-3 years-

So my question is this are people in spain starting to do the same thing, o holding on to the bitter end losing everything

[Lawbird Lawyer]

Hi Rob,

US Banks will now be pursuing "strategic defaulters" so I'm told.

In Spain you have to be out of your mind to default on a mortgage voluntarily (if you have assets, mind you). I even read an article of someone who publicly advocated doing this as a "solution". The author was a UK accountant, not a lawyer.

Spanish people hold on till the bitter end living on bread and butter if neccessary.

It has now dawned on non-residents the serious consequences of defaulting. Mainly that the liability is personal and unlimited (Art 105 of Spain's Mortgage Act) and you may be pursued abroad against your home country's assets so it's no joke.

There are cases in which some non-resident borrowers default "strategically" hoping they will not be pursued abroad. This is basically acting like an ostridge ducking their heads in the sand.

In fact in Spain one could agree with its lender to limit the extent of responsibility to the asset itself acting as collateral. So if you default they only take away said asset and would not pursue you should there be a shortfall. But unsurprisingly lenders seldom agree to sign such a clause because they want to play safe.

Art 140 of Spain's Mortgage Act:


No obstante lo dispuesto en el artÃ*culo 105, podrá válidamente pactarse en la escritura de constitución de la hipoteca voluntaria que la obligación garantizada se haga solamente efectiva sobre los bienes hipotecados.

En este caso, la responsabilidad del deudor y la acción del acreedor, por virtud del préstamo hipotecario, quedarán limitadas al importe de los bienes hipotecados, y no alcanzarán a los demás bienes del patrimonio del deudor.

Yours sincerely,
Raymudno LarraÃ*n Nesbitt

[Rob in Madrid]

Thanks, it should be noted that in some states the loans, mortgages are non-recourse so the lender can't go after you. Also and much more important when ever dealing with a bank (short sale foreclosure etc) you need good legal advice. There have been stories of people doing a short sale and the bank coming after them a few years later.

Personally I don't understand why everyone is so eager to buy. Yes prices are much lower than at the boom, but they are going no where (expect down) anytime soon. If you rent all the risk is on the landlord and you're not tying up all your capital. just my 2 ) céntimos

[Lawbird Lawyer]

Hi Rob,

We've had a couple of posts on the open forum and quite a few more privately on having "short sold" or handed back the keys without a lawyer and then being chased by their banks for the balance.

E.g.

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

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

That's why I always recommend hiring a lawyer to make sure that your personal and unlimited mortgage liability is fully discharged on handing back the keys. Only because a lender agrees with you by email to accept a dación en pago does not mean you are actually signing that a a Notary, such as in the above cases The only thing that matters legally is the deed that is actually signed before a Notary Public.

Regarding your advice of renting rather than buying now I've been advocating that for a few years. But I take it further than that, I advice rent-to-buy. With a rent-to-buy contract you are letting a property but you have the choice, not the obligation, of buying the property after a couple of years if it suits you. To top it off, the rent is deductible from the sales price so it's not throwing good money away.

Many developers are now offering this in 2010 in off-plan property at very attractive prices. Naturally there are many resales that are also offering this option to serious potential buyers. These rent-to-buy contracts differ greatly one from another. Some landlords may ask you to pay a full year upfront lump sum, others may ask for a rental bank guarantee. Some will allow you only 11 months, others 4 years. There's freedom to tailor the terms and conditions of said contracts to suit both parties.

I wrote an article last year on rent-to-buys as I reckon it's an excellent option withg the ongoing market turmoil in which house prices may fall another 20%. The truth is that no one knows and its all wild guessing at best. Some qualified experts are of the opinion that the market has already bottomed out, others that it will fall further (20%) and then there are those that believe property prices should fall a further 50-70% (!).

Reant-to-Buy Or How To Profit From Spain's Market Downturn - 5th November 2009

For what is worth I'm in the camp who believes that property prices will continue falling a further 20% on the costas over the next three years or so as we may be heading for a W-shaped recovery if there's a hike of interest rates later on this year. Regarding upscale market, luxury villas and penthouses, I think we may have already hit rock bottom already as they are fairly resilient.

Yours sincerely,
Raymundo LarraÃ*n Nesbitt