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Bank Repossessions in Spain: A Legal Perspective

Raymundo Larraín Nesbitt - Lawbird Legal Services
25th of June 2008

The amount of bank loan delinquencies has soared over the last months and it’s at levels unseen in more than 8 years, according to the latest figures of the Bank of Spain. The underlying causes are related to the economic crisis we are in: high levels of unemployment, the rising inflation, and the Euribor (used as a reference index in most of the Spanish mortgages) having reached a historic peak, something which translates into higher monthly repayments. Also, the strengthening of the Euro against other currencies such as the Sterling Pound or the US Dollar makes it harder for these currency holders to meet their monthly mortgage repayments in Euros. Falling property prices have also discouraged many potential purchasers as well as making it difficult for people to borrow against their properties through equity releases or life-time loans.

Eur vs GBP historic data (24-06-2008)

This fall in value means some people are not interested in continuing to service their mortgages as they have run into negative equity (meaning they owe the bank more than what their property is worth). It is a common misconception to believe that handing over the keys for the property will settle the matter with the lending bank. Although some Spanish banks have accepted this in the past (depending on each particular case and providing the borrower is not in negative equity) most do not any longer. In many cases, on doing this, many banks will be losing money as they realise your property is not worth in a public auction the value of the outstanding mortgage loan. This is basically what running into negative equity means.

Foreign home owners are concerned with what will happen to their assets back in their home countries if the bank refuses to accept the keys in exchange of the cancellation of the mortgage. While it used to be uncommon for Spanish banks to pursue debts abroad, on the wake of this new grim economical environment we are in, they are now forced to do it due to the alarming surge in delinquencies. 

Exactly How Can One Run into Negative Equity?

We have witnessed in the last months how some banks are actually just accepting the return of keys and keeping the property as repayment. However, this will only happen if there is no significant negative equity on the property. In this case you will have to sign before a Notary a deed by which the loan is terminated. It’s much more cost efficient for banks to just repossess the dwelling without having to go through the hassle and costs of a public auction which could take a couple of years. Avoiding a Public Auction also allows banks to waive setting-up financial provisions on their books to off-set the loss which doesn’t look good in the eyes of shareholders and investors.

Although it may seem difficult at first, the truth is that running into negative equity is surprisingly easy. In the following lines we explain how this can happen.

Drop in Property Prices

The bank, on deciding if they will grant you a loan, will command an appraisal of the property to issue their Binding Offer. This property will act as collateral of the loan. If this value is unrealistic and is above the actual market value of the property should there be a fall in house prices, such as now, then this property can be worth less than the loan it is guaranteeing. 

All mortgage contracts in Spain have a clause by which if the value of the property falls below 20% of the appraisal value the bank may request at their own discretion additional collateral to offset the financial shortage. In practice banks seldom opt to enforce it but they could legally.

In the event the bank seizes the property, it can auction it in a Public Auction.

Public Auctions Mean a Further Drop in Property Prices

As the influx of repossessed properties increases in the near future banks will eventually be forced to go through a Public Auction. In these auctions the value fetched by properties can easily fall below 50% of the market value, which would mean that even if the bank sells the asset in the auction the debtor will still owe the bank the balance of the loan. To this balance the legal fees of the bank’s lawyer and the associated costs of the seizure process must be added.

But wait, I have already paid X% of the mortgage capital during the equivalent period of time!

Well, I’m afraid you haven’t! If your mortgage uses the French repayment system (as most of the mortgages granted by Spanish banks do), then you will only have paid a small fraction of the mortgage capital. The reason is that with the French system you pay interest-only during the early stages of the mortgage, and it gradually shifts to capital-only following a lineal sliding scale. This system allows having monthly payments that are invariable throughout the life of the mortgage.

French vs German Repayment System. Source: De Finanzas

Extent of liability

Following article 1911 of the Spanish Civil Code on signing a mortgage deed you will be held liable with all your current and future assets. The mortgage is only a guarantee subject to the financial loan acting the property or underlying asset as collateral.

The above has huge legal implications which borrowers ought to understand fully on signing a Spanish mortgage deed. This would mean that if you default on servicing your Spanish mortgage, the bank can actually seize the property acting as collateral. If you fall into negative equity it, the bank is entitled to pursue you for the outstanding debt even in your home country.

Unlike in the UK and the US, most of the time handing back the keys to the bank will not stop them chasing you for the outstanding debt.

 

The Six Stages of a Home Repossession

Not all properties end in a public auction, especially in those cases in which the borrower is not in negative equity. The bank may reach an out-of-court-settlement on the matter by means of the borrower basically signing over in a public deed to the bank the ownership of the property. The bank agrees in this deed not to pursue the debt any further in return of the ownership.

In those cases in which this agreement is not possible, the repossession procedure is approximately as follows:

• The borrower falls into arrears - The borrower fails to service their mortgage repayments. Delay interests rates (“interés de demora”) are applied. The bank contacts the borrower and may attempt to settle the matter out-of-court.
• In technical default - This happens 90 days as from the first arrear. The client file is passed onto the bank’s debt collection department which tries in a last attempt to recover the debt. The bank is forced to set aside a provision to offset this potential loss. That is why many banks are open to negotiate before a default because these compulsory provisions that must be deposited before the Bank of Spain undermine the Lender’s liquidity ratios something which banks with the ongoing current credit crunch will try to avoid.
• Foreclosure and notary intervention - Depending on the chances of a debt recovery, 15 or 20 days after the technical default. A registered communication is sent by a Notary Public with acknowledgement of receipt, informing them that the repossession procedure is imminent.
• Repossession order - The matter is brought forth to be trialled. The judge communicates the borrowers of the mortgage repossession. The value of the asset in the public auction can be either the one that is lodged at the Land Registry or else the bank may command an updated appraisal. This updated appraisal will also be useful for the bank to decide on whether it is worthwhile or not to proceed with the repossession as it has high associated expenses.   
• The Court sets a date for the Public Auction - Normally between 6 to 12 months after the start of the Executive Procedure. The judge decides on the date of the auction. If no one bids for the property the bank will keep it.  The bank tries to offset the outstanding loan debt with this auction. However, it may happen that after the property has been assigned to a winning bidder the amount raised is not enough to cover the debt plus all the associated repossession expenses (i.e. because the borrower had run into negative equity). The bank is entitled to pursue the rest of his assets even if abroad.  Should there be a guarantor in the mortgage deed the bank will chase their assets.  The property will now be lodged under the name of the new owner. 
  
• Eviction - In the event the owner is still in the property, after a period that normally spans six months, the Police will arrive at their door step with a locksmith to evict them by force. There are a number of cases in which this may not possible for legal reasons.

What to do if you cannot pay your Mortgage?

If you are struggling to meet your monthly mortgage repayments, and selling your property in time to raise the money to cancel the mortgage seems an impossible task, do not wait until you have fallen into arrears to start negotiating with your bank. After 3 months of mortgage arrears Spanish banks start to take legal action, so even if you manage to reach a settlement with them after said time (something which is very unlikely, as the bank sees you now like a defaulter) you will still have to pay not only the owed amount albeit all the legal expenses borne due to said default.

Negotiations with the lending bank include extending the mortgage period, reducing the interest rate or moving on to an interest-only mortgage for a few years until your economic circumstances improve.  If after applying any of these options, you still cannot meet your monthly repayments, it is better to try to agree the handing over of the keys than to just let the bank unilaterally repossess the property.

Conclusion

Defaulting on a Spanish mortgage is a serious affair that may affect both your assets in your home country and your credit rating as the debt will be against you personally.  If everything else fails, the only option left is to try to negotiate with your bank. Banks are open to renegotiate the lending terms providing you are not in arrears with them.

Discuss this Article

• wwyavrfccv Says:

  Fri, Nov 7th 2008, 07:45

• Mrs Haynes Says:

  Tue, Dec 9th 2008, 17:50

  I understand the implications of reposeesion & I'm currently not in arrears, however I'm struggling to find ANYBODY who will speak English in my Spanish bank to try and help with altrernatives before I fall behind with the mortgage payments.

• aflores Says:

  Sat, Dec 13th 2008, 17:30

  Hello Mrs. Haynes, What should ideally happen is that the property is transferred to the bank against payment of the debt and so the bank would then own the property and the mortgage would be fully settled, ensuring that there will be no comeback. If you believe you will not be able to keep the payments up to date you would need to talk to them to advise them that you may not be paying the mortgage any longer and it is in their interest to take the unit directly from you as opposed to having to go through a repossesion procedure.

• J.Adcock Says:

  Tue, Dec 16th 2008, 09:58

  I currently own property where my ex partner wont pay there part of the mortgage and wont let me sell the property is there anything I can do?Her name is on the mortgage and the escitora there is also a third party on the mortgage but not the escitora.

• MRS Johnson Says:

  Tue, Jan 20th 2009, 13:58

  we are finding it hard to pay our spanish morgage,we moved back to england 1 year ago,and am trying to sell it ,we put alot of our own money in it now the house is only worth 150,000e what should we do should we just cut and run or what im unsure as to what to do?????we have definatly lost the money we put into it,the whole time in spain has just been the biggest mistake we have made.manythanks

• Mr Morgan Says:

  Thu, Jan 22nd 2009, 21:37

  We have been tring to contact our mortgage provider, Caja Murcia, but with out success. I have phoned and E Mailed but with out any reply. I have phoned again and spoken to someone who took my number and promiced to phone back, but never did. Can you suggest a way we can formally contact out bank.

• Lawbird Lawyer Says:

  Fri, Jan 23rd 2009, 17:04

  Dear Sir, No I’m afraid none other than sending them a registered letter (dubbed “burofax” in Spanish) addressed to the bank’s branch where you have set your mortgage repayments with acknowledgement of both receipt and content.

• mr willett Says:

  Sun, Jan 25th 2009, 21:59

  we are not behind with our spanish morgage however we owe the back 60.000 euros but it will not sell for this bear in mind we paid £23.0000 into this property as a deposit. we can not aford the 520euro morgage per month now ! as i have lost my job can you please give us some advice. could we just give the keys back to the bank ! we are in rented property at present , would this affect us getting a uk morgage later on. thanks

• Fraught and distressed Says:

  Wed, Feb 4th 2009, 17:24

  We have been speaking to our back but as the remainning 5% of the mortgage was covered by an insurance company they state that they are incapable of doing anything for us. We seem to be chasing the bank in order to resolve the issue, and receiving nothing in return. Is it advisable to wait until they reposess, or instigate the proceedings? If the house at auction falls into negative equity, and we owe the bank, (is it true that this would effect us in our home coutry?) would we have to declare ourselves bankrupt, and what are the legal implications here? If anyone can assist!!!

• Lawbird Lawyer Says:

  Wed, Feb 4th 2009, 21:09

  Dear Sir/Madam, As per my article yes banks can legally chase you in your home country for the outstanding balance as you are held personally responsible of the loan you accepted. As per art 1911 of our Spanish Civil Code the responsibility is unlimited and you will respond with all your current and future assets. Will your bank pursue you if after the repossession procedure you are left heavily in negative equity? I have no idea. For Spanish banks to pursue you abroad is an expensive procedure so its not all that easy for them. That is why I imagine -being practical as banks are- many will sell off the debt to local debt collecting agencies for a nominal value and waive long and protracted procedures. Because one thing is what the laws says and another very different is how things really work in practice. Besides, will UK Authorities sit idly whilst our banks seize dozens of thousands of properties in the UK leaving owners homeless? Its up to the lender to initiate the repossession procedure. Regards, Raymundo Larraín Nesbitt

• Mike Carter Says:

  Fri, Feb 6th 2009, 20:09

  We have a property in Costa Blanca. I have been made redundant so we are struggling to meet the mortgage. It is on the market but as in the UK houses are not selling at the moment. What would happen if we said to our bank we would like to hand the keys back to you as we cannot afford it? What is the best way forward regarding our situation please?

• mpat Says:

  Sat, Feb 7th 2009, 01:10

  What is dacion en pago.is it repossession?

• Lawbird Lawyer Says:

  Mon, Feb 9th 2009, 17:45

  The purpose of a dación en pago is to waive the repossession procedure on you defaulting. A "dación en pago" is handing over the keys to the lender in exchange of having all debt discharged. The reason borrowers do this is because in Spain the responsibility on your defaulting a mortgage loan is personal and unlimited as per art 1911 of the Spanish Civil Code. Spanish banks can pursue you in your home country if you run into negative equity and the collateral's (the property) value is not high enough to offset the arrears, delay interests, lawyer's fees, associated expenses of the repossession procedure etc.. Please read the only article there is written in English on the dación en pago procedure. Regards, Raymundo Larraín Nesbitt

• john foran Says:

  Tue, Feb 10th 2009, 21:04

  My brother has a property in Spain that he has not paid the mortgage on in 4 months due to him losing his job and seperating from his wife of 10 years, he understands that he will lose his property if he does not come to a resolution with the bank, but there is also a cross charge on my parents house in spain which has no mortgage on it, can my parents lose their house?

• Lawbird Lawyer Says:

  Thu, Feb 12th 2009, 12:40

  By "crosscharge" you mean they were acting as guarantors of your brother's mortgage? In that case on your brother defaulting and the lender repossessing him should the property be in negative equity the lender can indeed go against your parent's property in Spain for the outstanding balance. That is why I never recommend anyone to act as guarantors on signing mortgage deeds because of the huge risk they are committing themselves to, often with their only home, just to please some family member. Please read my article on Bank Repossessions in Spain. I quote myself: The Court sets a date for the Public Auction - Normally between 6 to 12 months after the start of the Executive Procedure. The judge decides on the date of the auction. If no one bids for the property the bank will keep it. The bank tries to offset the outstanding loan debt with this auction. However, it may happen that after the property has been assigned to a winning bidder the amount raised is not enough to cover the debt plus all the associated repossession expenses (i.e. because the borrower had run into negative equity). The bank is entitled to pursue the rest of his assets even if abroad. Should there be a guarantor in the mortgage deed the bank will chase their assets. The property will now be lodged under the name of the new owner.

• Mr Nelson Says:

  Thu, Feb 12th 2009, 22:06

  I have a similar situation with a property in Holland. I fell behind on the mortgage and went into default.I then agreed to give the bank power of attorney to sell the property which they then did. I thought this would be better than allowing them to repossess. The property sold for a lot less than my mortgage so of course I still owe tens of thousands of Euros on it. How would the dutch bank go about recovering money from me. They have an old UK address for me and have no idea where in the world I am. Since the bank cant get hold of me (other than email) is it a good idea to approach them and make an offer. Say offer to pay 20% of the balance in full and final settlement ? How could I make this full and final settlement legal and enforcable so they couldnt come back to me later. Thanks

• Mrs H Says:

  Fri, Feb 13th 2009, 00:30

  My bank manager emailed me in October 2008 and confimed that the bank would take the property back with no further action.Since then he has left and no one else can speak english I have phoned left messages and sent emails to confirm that the bank have agreed to take pocession of the property I dont know what to do as I have emails to confirm the bank have agreed to take the property back any advise what todo next????

• Lawbird Lawyer Says:

  Thu, Feb 19th 2009, 18:49

  Dear Madam, I think you better appoint a lawyer to find out what is happenning with the dación en pago procedure (handing over the keys to the lender). The legal steps to complete a Dación en Pago Procedure are: 1.- The customer must be on time with payments (the repossession legal procedure must not have been initiated), with Community fees and local taxes. 2.- You contact your lenders' branch manager and propose it to them. 3.- The borrower will be required to pay a new valuation (updated appraisal). 4.-If on average 80% of the new valuation of the property cover (debits +13% of the debits like legal expenses) the lender will accept to take the possession of the apartment, cancelling your debits and will waive taking legal action in Spain and in the British courts. 5.-The day of the signing the Deed at the Notary, the borrower will surrender the keys, and leave the property clear of furniture and tenants.

• Mrs Ruskin Says:

  Fri, Feb 20th 2009, 15:30

  I am in arrears by 2 nearly 3 months, but we have paid small amounts as suggested by the bank. The bank have said that we cannot renegotiate the mortgage and to return it would also be very expensive. If the property is valued or sold with negative equity do we then pay interest on that difference and is it common to negotiate the sum owed? Thanks

• Lawbird Lawyer Says:

  Mon, Feb 23rd 2009, 10:04

  Dear Madam, The bank is probably not accepting the dación en pago procedure because you are already in negative equity. A dación en pago is a conveyance procedure it's as if you were selling the property only that you will not receive money for it. So all associated expenses, fees and taxes to a normal conveyance procedure have to be paid. That is why there must be equity in the property to make up for this shortfall as it will be the bank that pays for all this (except the appraisal) which can be offset against the property's equity. In your case the bank will probably end up repossessing you. Your best option wpuld be to sell the property as a non-performing mortgage loan (distressed asset) for the value of the loan so you can walk out clean.

• joanne hill Says:

  Mon, Mar 16th 2009, 09:07

  our Spanish property was valued by the bank at 300,001 euros the property was on sale for 240,000 euros. Since buying the property in September 2007 the value has plummeted to 190,000 euros. Do i have a case for negligence against the bank. I believe i have been subject to very unprofessional behavior from the bank. I believe my property was deliberately overvalued so a 110% mortgage could be sold.

• Lawbird Lawyer Says:

  Fri, Mar 20th 2009, 10:42

  Dear Madam, No, I don't believe you have a case. Yours faithfully,

• Nicky Says:

  Sat, Mar 21st 2009, 19:07

  We too have been caught in the credit crisis. We have two mortgages on two separate properties but with the same bank. Mine and my husband's work has dwindled and this coupled with the high interest rates we have been paying over the last year have left us drained of all money and savings. There is equity in both properties. We have been in talks with the bank for the last 5 months and they are finally lowering the interest rate a little but still the repayments are too high for us. We would be able to afford interest only and keep both properties which is what we would like to do but the bank will not let us. Indeed even though they are reducing the interest rate a little they are now asking for life insurances for myself and my husband which puts the costs up again. If we hand the keys back to the bank can they take our other property and thus make us homeless. On recent valuations there is more than sufficient equity in both properties and we have had them both on the market but they are very few buyers at the moment and we are running out of time. Please can you give us some advice of what we should do next. Thank you

• Lawbird Lawyer Says:

  Wed, Mar 25th 2009, 14:11

  Dear Madam, We've written a detailed article on the dación en pago procedure (handing back the keys to the lender) and submitted it to admin but we are still waiting for them to publish it... When they finally do I'll post the link to it. In the meantime, you can read a detailed reply on this matter in this thread.

• mrs Brewer Says:

  Sun, Mar 29th 2009, 22:30

  Hi i have a morgage in spain of 81,000 euros my property is up for sale for 99,000 euros which i have just recently reduced. I desperatly would like to buy a property in England but handing my keys back in spain, would that blacklist me in England for a morgage?

• Lawbird Lawyer Says:

  Mon, Mar 30th 2009, 09:41

  Dear Madam, No, it will not affect you in the least. Please read our featured article on Dación en Pago (handing back the keys): The Dación en Pago Explained - 28th March 2009 What will affect you is if the Spanish lender repossess you. In that case not only will you be blacklisted in ASNEF, RAI, and Experian but also they may chase you in the UK for the outstanding debt or elsewhere.

• L palmer Says:

  Thu, Apr 9th 2009, 22:34

  We like many can no longer afford our spanish mortgage, it is in negitive equity . Paying this mortgage in spain is resulting in us also being in difficulties here in the uk,we have contacted the consumer credit counselling service . We are a month behind with our mortgage in spain an we have not paid welth tax an community fees !!!. Our house is mortgaged in the uk an is specialy addapted for our handicapped daughter so i am scared of losing it if they come after us here in the uk, what can we do .

• spanish resident Says:

  Thu, Jun 4th 2009, 16:56

  i am english and a spanish resident and am being repossessed, the property is in negative equity, if i return to the uk will the spanish bank persue me there?, i have no uk or spanish job, and no assets in the uk. not sure what the spanish bank can do and surely noone (another bank) will buy their bad debt and persue me due to me having no assets at all, and what can a debt collector do when i have nothing for him to collect? like mrs johnson, worse mistake of our lives!

• bill Says:

  Sat, Jun 6th 2009, 16:03

  Dear Sir/Madam,we have not paid our mortgage for over 1 year now,but have still not heard from our bank or any other authority.we approached our bank months before we saw ourselves not being able to keep up the repayments.our bank manager said he was not interested,and would personally reposses our house.We have since found out ,the mortgage was for a vivieda,we own a nave.The bank will not speak with us now,but still no letters.HELP

• Lawbird Lawyer Says:

  Mon, Jun 15th 2009, 10:09

  Dear Mr Palmer, That's up to your Spanish lender. They will decide on whether they pursue you or else sell on the debt to some other company, such as a debt collecting agency. Normally Spanish lenders do not pursue abroad for small amounts as its expensive for them and would be hardly worthwhile. It all boils down to the amount outstanding owed to them. If its high enough it will be worthwhile for them to pursue you abroad or else sell on the debt to someone local who will. If your UK property already has a mortgage against it, much of the equity is already compromised. So the Spanish lender would just place an additional charge on it. If they repossessed it it would be your UK lender who would obtain the lion's share as they were first and have priority. So it makes sense for the spanish lender to just wait patiently until you sell it on. From the sales proceeds, the buyer will have to pay them what they are owned.

• Lawbird Lawyer Says:

  Mon, Jun 15th 2009, 10:21

  Dear Spanish resident, You may not have assets now but in time you will. i.e. inheritance. The Spanish lender will have you blacklisted in Experian and others barring you the possiblity to acces UK mortgages. The dealine to pursue the mortgage debt is 20 years. However, if the lender within those 20 years communicates the debt or tries to contact the borrower the deadline is renewed, each time. So basically, unless you are very lucky, they will pursue you for the remainder of your lifetime. And quite certainly at some point or other you will have assets.

• Lawbird Lawyer Says:

  Mon, Jun 15th 2009, 10:35

  Dear Sir, The bank manager will repossess the nave acting as collateral. If that doesn't suffice, and you slip into negative equity, you will be held liable with your remaining assets, whether located in Spain or elsewhere. What you must understand is that in Spain, unlike anglosaxon countries, when you take on a mortgage loan your responsibility is personal and unlimited with all your assets, both now and in the future, on you defaulting the mortgage loan whether for a dwelling, nave industrial, rustic plot of land or whatever the case may be. If the collateral makes up for the owed amount that's fine and the debt will be fully discharged. Albeit if it doesn't, even after they've repossessed the collateral, they will chase you for the outstanding difference which mounts up every day with the default compound interest which ranges on average 25-29% p.a. In every Mortgage deed you have the exact tailored default percentage apllicable to your own loan. Please read my article which starts off this thread and explains the unlimited responsibility concept ex art 1911 of the Spanish Civil Code. Yours faithfully, Raymundo Larraín Nesbitt

• Lawbird Lawyer Says:

  Mon, Jun 15th 2009, 19:06

  As this matter of collecting debts in the UK or in the ROI from non-performing mortgage loans is becoming increasingly important, it's now under the spotlight of the Spanish financial press: La crisis inmobiliaria española llega a los juzgados británicos Expansión. Publicado el 13-06-09 , por Roberto Casado. Londres We'll write a blog post shortly specific on this matter.

• Manny Says:

  Thu, Jun 18th 2009, 23:15

  Dear Sir or Madam My daughter has handed in the keys of her property in Spain to the bank. She owns her home in England where she lives with her son. Would she be able protect her home in England from the bank in Spain if she were to put it in trust for her son? If so, are there any drawbacks/negatives in doing so and could it be changed at a later date? Many thanks!

• Lawbird Lawyer Says:

  Mon, Jun 22nd 2009, 11:49

  Dear Sir/Madam, This query regarding "putting it in trust" should be asked to an English lawyer as it relates to English law. If your daughter has followed a dación en pago procedure and her debt has been fully discharged in Spain before a Notary public signing a deed, then there is no reason to fear the Spanish lender. The debt has been settled already. If your daughter however just handed the keys over at the bank then she has a reason to be concerned as the debt is still outstanding and her liability will be personal and unlimited.

• Michael Says:

  Tue, Aug 25th 2009, 17:15

  Dear Sir I have a house with Hipotec in Spain. I am not in negative, however it has come to my attention that besided a number of problems/errors when I purchased the house some 3 years ago, the bank have not registered the hipoteca in the notary. It is named in the scriptura. If I fall into negative, then as I understand it the Bank can NOT reposses the house as they have not notarised the hipoteca.

• Lawbird Lawyer Says:

  Wed, Aug 26th 2009, 09:32

  Dear Michael, What you meant to write is that the Mortagge Deed had been correctly signed at the Notary but for some legal reason it has not been lodged at the Land Registry and registered against your property. This happens more often than people think. It normally has to do with the Registrar not accepting some clauses in the mortgage deed. So the Mortgage deed has to be amended to be re-registered at the land registry or else the Notary files a complaint against the Registrar which has to be settled. The bank can still repossess the property regardless of this as you signed a binding agreement with them, the notarial Mortgage deed. The problem is that if someone wanted to but this property from you they would see no mortgage against it as it would effectively be free of charges. In any case this buyer would be protected because he's buying in good faith. Yours faithfully,

• Mrs Smith Says:

  Fri, Sep 4th 2009, 17:19

  I am being repossesed due to none payment of my mortgage for a year. I did go to my bank manager and asked for interest only as I am resident in Spain and understood that they would do this, this was before I was in trouble. She said she would let me know. After a while I rang again and was told she was still waiting. I did not pay anything to the bank as it would have eaten up the lesser money that I had. I then received a telephone call from the bank recovery saying they would embargo my business. I went to see him and he said I must come up with 10k as they were calling in my loan and credit card in full. I got him the 10k although it was a week late and he told me I needed more. To cut it short I took my money away and tried to make contact with my bank manager via e mail. They did not reply so I sent a recorded delivery to the head office, still no reply in the meantime I had to go and collect the court papers and was told the case was in acto. I am thinking of going to court and defending myself, on the grounds that the bank did not respond to any attempt to resolve this situation. Is this possible? Many thanks

• Lawbird Lawyer Says:

  Mon, Sep 7th 2009, 09:37

  Dear Mrs Smith, No, I'm afraid that is not sufficient grounds to file a law suit. You would likely lose and be spending good money after bad. Changing to interest-only means that you are requesting that what you agreed in your Mortgage Deed needs to be amended. On signing a Mortgage Deed it is a binding contract for both parties. It is up to your lender if they accept or not. It used to be common that Spanish lenders did but only for 1 or 2 years as a teaser. Foreign lenders even offered up to 15 years interest-only (HBOS). Post-credit crunch, banks have thier own problems and seldom accept it. I've only seen a few cases recently in which they have; the majority of requests for interest-only are now turned down. Unfortunately now its too late and as you write, you will be repossessed by them. Yours faithfully, Raymundo Larraín Nesbitt

• Mr Brown Says:

  Thu, Sep 10th 2009, 15:33

  I was sold a reform by an estate agent who subsequently arranged a builders quote and a project manager. There is a mortgage of Euro 49,000. Separately, I spent a considerable amount of cash doing it up and the build quality is not good. However, working abroad, i have never lived there so the property is also looking jaded. It now transpires that the village is infested with termits and my property is affected. I would practically now have to rebuild a second time (Euro 45,000) with concrete floors (as opposed to wooden floors etc). I am reluctant to do so and am thinking of handing over the keys in desperation. Do i have any comeback against agent / builders for recommending wooden floors in an area known for termites ? Is termite treatment an alternative ? Is there an honest builder in Spain !? Separately, can I transfer title of my UK property to my niece to try and escape the hunt for assets ? Can the Spanish Banks go after offshore bank accounts ? Sorry for all the questions Mr Lawbird. This site is so informative. Keep up the good work.

• Lawbird Lawyer Says:

  Fri, Sep 11th 2009, 15:17

  Dear Mr Brown, Thank you for your kind words. I would advise you treated the wood with anti termite rather than going on a suing spree against estate agents or developers. You would likely lose. Spanish lenders can pursue you abroad on you defaulting on a mortgage loan for the shortfall, yes. You are personally and unlimitedly responsible for a mortgage loan with all your assets both now and in the future wherever they may be located as per art 1911 of the Spanish Civil Code and as per the Mortgage Act. If your money is safely hidden away in off shore bank accounts, no one can pursue it. If you hold assets in the UK, they can pursue them and are in fact already doing so: forced complete ( 1 2) Unregistered chased to complete abo07 What remedies does a developer have to enforce completion Unregistered Can we be chased by the bank after arranging a Dacion en Pago? Unregistered Will i lose my uk home Unregistered Property was bargained away and we are being chased for the shortfall. Please help! Wendy That's the whole purpose of this website, to reply to Spanish legal queries, no need to apologise. Yours faithfully, Raymundo Larraín Nesbitt

• Mrs Hoos Says:

  Thu, Sep 24th 2009, 22:25

  We have an apartment in the Costa Blanca and we are struggling to repay the mortgage on it, we are not behind yet. The builder went bust and the building is unfinished so we are not able to rent it out or sell it as it is. Could we arrange a Dacion en Pago? Also our solicitor signed for the property on our behalf, we had given her power of attorney but had not given her our permission to complete on the purchase. Also we have never been to Spain to sign again for it in person. Is there any way we can give this property up without having our home in the UK taken away from us? Please help us we are desperate.

• Lawbird Lawyer Says:

  Fri, Sep 25th 2009, 09:17

  Dear Mrs Hoos, You can follow a dación en pago de deuda providing: 1.- The property is not in negative equity 2.- The bank has not initiated a repossession procedure. You can read about the dacion en pago procedure in more detail in my article: The Dación en Pago Explained - 28th of March 2009 Please contact us if you want to hire us for this legal service. Yours faithfully, Raymundo Larraín Nesbitt

• Delboy Says:

  Tue, Sep 29th 2009, 09:34

  I have a property in Vera Almeria and we have a 2 bedroomed apartment which was valued at 185000 euros but we would now be lucky to get 100,000 for it in the current climate. Someone has actually offered us 100,000 euros cash, but because we have a mortgage of 140,000 with arrears, the bank are refusing to accept the offer. I'd heard that new rules by the bank of Spain allow spanish banks to only provision for 70% of a loan in arrears. Surely then it would be in the banks interest to accept this offer. But they seem to want to proceed with repossession and hope to get more from its auction value which I find unlikely. I also read that the EU are taking a dim view of the way spanish banks have overinflated their bank valuations in the past and I believe the bank of Spain are insisting that banks update their valuations. Surely there must be some way that the EU can demand that banks take some financial responsibility for the gross negative equity that many spanish property owners now find themselves in! this would be classed as fraud in any other country!!

• Lawbird Lawyer Says:

  Tue, Sep 29th 2009, 13:05

  Dear Sir/Madam, I will not be sucked in to the issue on whether Spanish banks ought to be held accountable or not for their actions. It is not for me to judge and besides it's totally off the point. Regarding your legal query, I've bought properties for clients in which the vendors sold below the mortgage value. Naturally the cheque I paid the vendor was solely in the lender's name and the vendor had to fork out the outstanding difference to their own bank prior to me purchasing the property. So it can be done. But then, how many vendors can afford to make up for the mortgage's shortfall (negative equity)? Very few and they have to be very desperate under threat of a bank repossession. Banks have instructed their valuers to "undervalue" properties following a nudge from the BoS from 2007. So now we've swerved from one opposite (overvaluing) to the other (undervaluing). Many properties are now being priced ridiculously below their intrinsic market value. But this on the other hand has created huge buying opportunities for those who are cash buyers in the midst of a liquidity shortage. Indeed today is a tough buyer's market. Yours faithfully, Raymundo Larraín Nesbitt

• el tel Says:

  Tue, Sep 29th 2009, 16:37

  There is a house on my complex which the owner went back to the UK and after 2 lots of squatters had used the house we now find the house has been trashed completely by the last squatter. The is paint and excrement all over the walls and ceilings and floors. The house was mortgaged by Santander but the lady who left to go back to the UK 2 years ago told them of her intentions and did not want anything to do with the house. Any advice would be welcome as the house still remains trashed and in a very unhealthy condition with a broken window. The President and administrator say they can do nothing about this health hazard its up to the bank.

• Lawbird Lawyer Says:

  Tue, Sep 29th 2009, 16:57

  Dear Sir/Madam, It's really a private property so they cannot -legally- access it. A different matter is the compliance with local health ordinances. You can file a complaint before the Town Hall and they can fumigate in extreme cases the premises for Public Health. The bank will repossess the proeprty evenatually. Law courts are now clogged with repos. They are taking an average of between 2-3 years, in some cases even more. Once the bank takes it over officially it is their duty to keep the property in good working/habitable conditions. Besides the bank will have to contribute and pay their share of the Community of Owners, just like everyone else. Yours faithfully,

• jacqui Says:

  Fri, Oct 2nd 2009, 18:02

  I have a house in spain which I have had difficulty making the payment. I have missed the 180 day deline because I did not find a tenant until the time had passed. The bank reduced the payments but i still could not get the rental amount to cover this. I have made offers to clear the arrears and keep up regular payments but they want accept this either. I am now at the point where I don't know to do. Can I still hand back the keys and will they chase me for any outstanding amount. My Mortgage is 5000,000 I know the value of the property has gone down to around 450,000. I own property in the uk can I put this is in trust to someone so that the spanish bank can not force me to sell.

• elgordo Says:

  Sat, Oct 3rd 2009, 11:19

  When people just leave a property and the banks take no interest for years I believe a comunidad can only claim the comunity debts for the current year and the preceding year. If this is correct then persons who build up years of debt will walk away virtually scot free or the new owners will only be responsible for the 2 years of debt I mentioned above. Please confirm.

• Lawbird Lawyer Says:

  Mon, Oct 5th 2009, 12:43

  Dear Jacqui, You can no longer hand back the keys to your bank (known in Spanish as "dación en pago de deuda") as your property is already in negative equity, meaning you owe your bank more than what it's worth. Additionally you write that you have overrun an 180 day deadline. I have no idea where you get that from. Banks normally do not start legal action against you until after 90 days or 3 months in arrears. Please read my detailed article on the matter which started off this thread as well as some related queries: Bank Repossessions in Spain: A Legal Perspective - 25th June 2008 What are my options if I have fallen in arrears on my Spanish mortgage? Property Law - 18th of November 2007 We are in 3 months of mortgage arrears with a Spanish bank for two properties the developer have not completed properly. What are our options? Property Law - 16th of September 2007 However, banks may start repossession procedure with only one month in arrears if they choose to as per the Mortgage Deed signed with them. You are not technically in default until after the 90 days in arrears which is why they normally wait so long. Some people mistakenly think that banks have to wait the said 3 months when its not the case, although in general they do wait. At this point in time on you being in arrears of six months your bank has probably started a repossession procedure against you. The ability of a lawyer to help you in such a case is honestly next-to-none. The reason is simple. You both signed a Mortgage deed (contract) which is mutually binding. On you breaching it (non-payment) the consequences are laid forth very clearly on it. Almost the only thing that can be done at this stage is come to an agreement to stop repossession which entails you paying all that's owed to your bank: 1.- Amount in arrears= six months 2.- Penalty interest on the 6 months arreas ranging from 18-30% compund anual interest 3.- Lawyer's fees for the repossession procedure (circa 10,000/15,000€) 4.- Court agent's fees for the repo 5.- Court's associated expenses for the repo You will be expected to pay all the above in lump sum upfront to stall successfully the legal procedure against you. If you fail to come up with all the requested funds they will continue the repossession. As per art 1911 of the Spanish Civil Code you will be held liable with all your assets, both now and in the future, for the outstanding balance owed to the Spanish bank after the repossession procedure is over. Meaning they will chase in the UK or elsewhere and place a charge against any assets you may hold in Spain or elsewhere. It may take years but they will eventually catch up with you; only that now the owed amount will be much higher due to the anual compound interest of 18-30%. That is why it's critical that one isn't repossessed in Spain.- it's a red line that, once crossed, will haunt you for the rest of your life. Which is why I always recommend that in lieu of a repossession procedure one hands back the keys to your lender to avoid it. Unfortunately in your case, you waited too long and you were already in negative equity. Yours faithfully, Raymundo Larraín Nesbitt

• Lawbird Lawyer Says:

  Mon, Oct 5th 2009, 12:53

  Dear "Elgordo", Yes that's the case. Please read my article on the matter of Spanish Commonholds or Comunidad de Propietarios: Comunidad de Propietarios: Avoid Problems with Your Neighbours in Spain - 26th June 2009 A quote from my article: Owners’ Duties Section 9 rules them in detail. The main duty will be, of course, to contribute to the maintenance and financial upkeep of the Community of Owners. Failure to pay the community fees will result in the Community of Owners placing a lien against your property and possibly auctioning it off. This legal procedure in Spain works surprisingly efficiently. You have been warned! . . . On buying a resale in a community, the new owner will be held liable for the prior owner’s communities’ debts for the current year of transfer of ownership as well as the natural year immediately precedent (art 9 e). The property itself will be burdened with a lien for unpaid communal debts. Which is why under law, the signing of the deed of transfer of ownership requires a Communities’ certificate stating that communal fees are up-to-date for that unit, signed by the communities’ administrator. The purchaser can however waive this requirement voluntarily. Yours faithfully, Raymundo Larraín Nesbitt

• Mr H Says:

  Thu, Oct 22nd 2009, 08:31

  I have 3 mortgages in costa del sol I am finding it increasingly difficult to fund The rentals are much reduced and in 1 case a tenant has simply not paid for 6 months I believe there is enough value in all the properties to hand the keys back What costs are involved , should I use a lawyer to do this process?

• Lawbird Lawyer Says:

  Thu, Oct 22nd 2009, 11:23

  Dear Mr H, It is not mandatory to use a lawyer on following a dación en pago. However I warn you there are many reported cases of borrowers who on not appointing a lawyer, to save themselves money, were duped into thinking they were signing a dación are now being chased by their lenders in the UK and elsewhere. A fine of example of such cases are the following threads: Can we be chased by the bank after arranging a Dacion en Pago? Unregistered Handing over keys - Mortgage arrears Unregistered After having witnessed such cases I can only strongly recommend that you appoint a lawer to act on your behalf and represent you in a dación en pago. You can contact us if you are interested in hiring us for this legal service. The Spanish name for "handing back the keys" to the lender is called "dación en pago". Please read my articles on the Dacion en Pago Explained and the Dación en Pago Procedure for more details, the only ones written in English on the matter. All it is, is that your lender agrees to buyback the property from you and in exchange they will write-off the outstanding debt having it fully discharged. You will not receive any money. This is formalised by means of signing a Deed at a Spanish notary and you surrendering the keys to them. The reason people do this is because on you defaulting servicing your Spanish mortgage the lender can repossess you. Please read my article on bank repossessions in Spain. If after they have repossessed you the property is left in negative equity, meaning you owe the bank more money than what the property is worth, they can actually pursue you abroad in your home country. In other words, unlike the US, you are personally at fault on owing money to the Spanish lender as per art 1911 of the Spanish Civil Code. The property itself, the collateral, was only guaranteeing the bank loan. Post repossession you will be held personally liable with all your assets, both now and in the future, for the difference between what you owe the bank (plus the repo associated expenses, lawyer's fees, default interests etc) and what the property is now worth after the full repossession procedure is over. The same thing happens in the United Kingdom. That is why many defaulting borrowers in lieu of being repossessed would rather either sell the non-performing mortgage as a distressed asset (of which there are now many websites available) or else follow a dación en pago procedure if they are unable to find a buyer in time. For a dación en pago to work out, two things are required basically: 1.- The property must not be in negative equity. 2.- Your lender must not have started a repossession procedure against the property. Basically the outline on how it works is as follows: 1.- The borrower must be on time with payments (the repossession legal procedure must not have been initiated), with Community fees and also with local taxes. 2.- You contact your lenders' branch manager and propose it to them. 3.- The borrower will require it to be reappraised. You will be expected by your lender to pay this in advance. On average it's approx 350€. 4.- If on average 80% of the new valuation of the property covers (debits +13% of the debits like legal expenses) the lender will accept to take the possession of the apartment, cancelling your debits and will waive taking legal action both in Spain and at the British courts. 5.- The day of signing the Deed at the Notary, the borrower will surrender the keys, and leave the property clear of furniture and tenants. It is not compulsory to hire a lawyer for the dación en pago. What is compulsory is that you appoint a translator to act on your behalf if your command of Spanish is low. However, we just cannot stress enough how important it is to appoint a lawyer who will act both as a translator and also verify that indeed your debt with the lender is being effectively fully discharged on you signing the Deed. Besides your lawyer will be able to negotiate with the lender as some banks will try to make borrowers pay for some expenses. The Notary is not there to give you legal advice as they act impartially to either party. Lawbird Legal Services offers this legal service at a flat fee of 1,392€ (16% VAT already included) per property. Depending on where your property is located within Spain, further travelling expenses may be applicable. We advice you contact your lender first prior to hiring us and see if they accept the dación en pago. The reason is that the above legal fee is a retainer fee and will not be refundable regardless of the outcome. So it's a good idea to first make sure the bank will accept the dación en pago before you hire us. If you think they are dragging their heels and weeks go by without feedback it might be a good idea to hire us to help push the matter through. Yours faithfully, Raymundo Larraín Nesbitt

• Robin Says:

  Thu, Oct 22nd 2009, 12:28

  HELP!! Necesito ayudar urgente!! I have a property in Spain which has a Hipoteca of 300k euro. I cannot rent it out as it has structural problems with the roof and windows and floods every winter. A perito has advised 15000 to repair. I am claiming the costs for repair to the Community. A court date has been set for March 2010. I cannot pay the hipoteca. I have asked the bank - Banco Halifax to take the keys in lieu. They made a new tasacion of 400k euro, so the property is not in negative equity. I asked for a copy of the tasacion but they refused. The current debt is only 750 euros but it will grow as I now have no work. The bank has refused to take back the property en pago en dacion del dueda. Instead, they call me from the UK 4 TIMES THIS WEEK TO DEMAND THE MONEY AND THREATEN COURT ACTION. It is very stressful. I have written to Halifax to explain the situation and ask to be released in view of the 100k positive equity but the just refuse and are now aggressive. What a mess! I have been trying to sell it for 2 years. Avoid Spainish property and avoid Banco Halifax - its like dealing with the devil! Can you help? Gracias y espero tu respuesta.

• Lawbird Lawyer Says:

  Thu, Oct 22nd 2009, 12:44

  Dear Sir/Madam, I think your case is similar to this other one: Buildings Insurance Thu, Aug 27th 2009, 09:20, (3 Replies) Yours faithfully,

• Robin Says:

  Thu, Oct 22nd 2009, 14:59

  Gracias We gave up with the insurance a long time ago. As the property has 100k of positive equity (based on the banks own tasacion in June 2009) why wont they take it back - how do we proceed to force the bank under Article 1175 of the Codigo Civil. Does it work?

• Lawbird Lawyer Says:

  Thu, Oct 22nd 2009, 15:35

  Dear Sir/Madam, You cannot force a bank into accepting a dación en pago unless the case is clear and your case isn't, in my opinion: The Dación en Pago Explained - 28th March 2009 What Happens if the Bank Refuses to Accept a Dación en Pago? Can I Challenge It? Yes you can, but being practical we wouldn’t recommend it. I would consider viable this option only if the bank had turned the proposal down unjustly when there is clearly more than enough equity to offset it against all the expenses. Note that it is pointless to challenge their refusal if it’s apparent you are in negative equity. It will be expensive, time consuming and fruitless. Besides you are overlooking the fact that they've already initiated a repossession procedure against you, so you are barred from following a dación en pago anyway: How does a Dación en Pago Work? For the lender to accept it two things are required.- 1. The property must not be in negative equity. 2. The lender must not have started a repossession procedure against the property. You don't fulfill either of the two points in my opinion. You are making the mistake of taking for granted you have 100k locked in your property based in the June appraisal when it simply may not be the case. In my experience getting along with banks, speaking to them, writing to them explaining the delicate financial situation you're undergoing and trying to reach an amicable solution is crucial. You must prove you really are making an effort. People who work at banks are human after all and they get into deep trouble as well when borrowers default on their loans leading to layoffs. Banks just loath clients who go missing in action and then request for help at the last moment, months later with huge arrears. I'm not saying this is your case, I'm just generalising. A dación en pago is a win-win for both lender and the struggling borrower who has no other option left. In your case your bank is a Brirish lender banking overseas. They know for fact you have UK assets. Yours faithfully, Raymundo Larraín Nesbitt

• Robin Says:

  Thu, Oct 22nd 2009, 15:57

  Raymundo Many thanks for your advice. However, 2 points are not quite correct. 1. There is equity based on the banks tasacion. Who else can value a property in this market! 2. The bank have not commenced a legal process. We are in arrears but will pay these next week. The Bank has confirmed this is OK. I know your comments were a generalisation, but in our case we have not gone missing! We have been negotiating with Halifax for over 1 year and they know our financial situation. They also know that our previous rental clients broke the contract because of the flooding and we are taking the Community to court for the loss of rental income under our 2 year contract. We have asked the bank to join our plieto against the Community but they just dont want to know. They just want their money! We have no UK assets. If we cannot get the bank to accept the biene then we either have to walk away or go to the courts with an action against the bank. Un saludo Robin

• Lawbird Lawyer Says:

  Thu, Oct 22nd 2009, 16:26

  Dear Sir or Madam, Let's go over these two points so as to clarify. The appraissal you have is not specific for a dación en pago, unless you stand me corrected, which is always lower than a normal appraisal value for conveyancve purposes or even for applying for a mortgage loan. So if the valuation came at 400k in June, for a dación it may have been as low as 350k. You do not realise that bank valuations differ depending on what they are needed for. Secondly your roof has damages that are worth at least 15,000€ in your own words, if not more. These have to be deducted from the value as well. How long will they atke to be repaired? Thirdly for a property worth 350k the expenses and costs arisen from the acceptance by the bank of a dacion en pago can easily be above 30,000/35,000€. So: 350 -15 -30 = 305 Outstanding mortgage is equal to 300,000€. Taking the role of the Devil's advocate, in my opinion there is not enough equity to warrant accepting a dación en pago. You haven't mentioned how much in arrears you already are in which would also have to be factored in the above valuation deducting it. Besides the defalut interest rates applicable. If more than 3 months have gone by in arrears then lawyer's fees may also be applicable to the tune of 15,000€. You must also factor in the maintainace anual costs this property incurs in (IBI tax, Garbage collection, Community Fees etc.) until the bank actually unloads it from its books selling it on. Whan you've factored in all the above it comes as no surprise why your lender has turned down a dación. Banks are not evil, it is in their best interest to accept a dación en pago rather than following a long and winding repossession procedure as explained here: THE “DACIÓN EN PAGO” EXPLAINED - Levante Lifestyle, 23rd April 2009 CONCLUSION A dation in payment is a win-win for both parties really. The borrower is free at last and has managed to secure successfully his assets whether in Spain or abroad from the lender or any law firm or debt collection agency they may hire to pursue the outstanding debt. The lender on the other hand will now own the property outright and will have successfully waived a lengthy, protracted and expensive court procedure (repossession), without having to apply for the mandatory provisions before the Bank of Spain to make up for this dubious loan which affects its liquidity ratio. A repossession procedure lasts two years minimum, and may easily entail for the bank expenses running up to 20 per cent of the property’s value. These provisions set aside by lenders are being looked upon closely by credit-rating agencies post credit crunch and may ultimately affect their share value. A dación en pago is not a God-given right. In your case it seems reasonable they've turned it down. Maybe some lawyer will be keen on taking your case suing the bank because they've turned you down. My opinion is that you will be wasting your money in a case like yours. I take it you are aware that on losing a court case you may also have to pay for the other party's legal fees besides all the legal expenses. So losing a litigation case can leave you easily 20,000-25,000€ out-of-pocket. Litigation is a double-edged sword and must be used only as last resort always and very carefully. Indulging into reckless litigation will only be detrimental: You Have a Strong Case… NOT - Wednesday, October 1st, 2008 A different matter is if you have a 600k property with a mortgage loan of 200k and they turn you down for a dación en pago. We would gladly represent you in such a case which you would be bound to win. I'm sorry but you wanted our opinion and we've given it to you. Anyway, our opinion is non-consequential, what matters here is what your bank, specifically their risk assessment department, makes out of it. Yours faithfully, Raymundo Larraín Nesbitt

• Robin Says:

  Thu, Oct 22nd 2009, 16:46

  I really appreciate the response and time you have given to my problem. The tasacion was for a Dacion, so to use your example the equity would be 400 -15 -30 = 355 less 300 hipoteca or 55 equity. It could be done but as you say, its a decision of the risk assessment department of a banco rota bank now owned by the UK Government! My proposal. Pay the mortgage until the court hears the claim against the Community in March. There are debts of 25k on the community fees and IBI (so the 55k equity is actually 30k less the fees due until the bank can sell it). If the court awards damages against the Community then I have to carry on paying the hipoteca until the market improves in probably 3-5 years. If we loose, well, it will be a sad way of saying adios to España! No easy solution - I guess there are thousands of others in similar situations in Spain. Good luck to all of you and like me, think very hard about buying overseas property in future.

• Lawbird Lawyer Says:

  Thu, Oct 22nd 2009, 16:48

  If the appraisal was specific for a dación then it may be different. How much are you in arrears and since when?

• Mrs N Fogolin Says:

  Sun, Nov 1st 2009, 17:21

  What a great and informative website. We currently have 2 Spanish mortgages and with the fall in the pound have found it very difficult to keep our heads above water. We have spoken about the prospect of handing in keys, but as both properties are in negative equaty as i have learned from this site, this is not an option. So all i can do is wish everyone a decent outcome to their problems as what goes up must come down and vice versa. We are going to try to hang in there and keep paying. We are blessed with a communicative bank and have a good relationship with them. Spain is not synonymous with competition, maybe now is a good time to change their strategy as its going to bite them as it has done its clients eventually.

• Lawbird Lawyer Says:

  Tue, Nov 3rd 2009, 09:28

  Thank you for your kind words. Yours faithfully,

• Altin Says:

  Tue, Nov 3rd 2009, 16:33

  I have a property in Cullera, Valencia, Spain and the court has set an auction date for 28th Sept 09, but there were no bids for the property. Does that mean i can return to live in the property until the bank sells it? Or is the property considered to be repossessed by the bank and hence no longer available to me?

• Lawbird Lawyer Says:

  Tue, Nov 3rd 2009, 17:00

  Dear Sir, You can live in the property until the court's bailiffs come to evict you along with police agents and a locksmith. Your lender will now adjudicate itsef the property for 50% of teh appraisal value and will pursue you legally if there's any shortfall on what's owed to them after the repossession procedure is over as per the article which starts off this thread. As explained in other threads, almost in all public auctions no-one is bidding and lenders are being forced to adjudicate themselves the repossessed dwellings. Yours faithfully,

• Unregistered Says:

  Tue, Nov 3rd 2009, 17:33

  Thank you for the prompt reply. Generally, how long does it take for the lender to adjudicate the property to themselves and for the police/bailiffs to evict. The article above says approximately 6 months from the public auction date. Is it correct to estimate that i can live at the property for approximately 6 months as of 28th Sept 09 (public auction date)? thanks

• Lawbird Lawyer Says:

  Tue, Nov 3rd 2009, 17:40

  Or maybe even longer. Spanish courts are now clogged with repossession procedures and these are painfully slow. It really depends on where the property is located which translates into the law courts activity. Those properties located in areas awash with repossessions (i.e. coastal areas) you can reasonably expect them to take longer whereas as properties located in the mainland courts may be more expeditive. Those timelines I gave in my article are to be used as basic guideline only. The same case can take longer or not depending on the court that will hear it. Nowadays a full repossession procedure is taking on average, from start to finish, between 2-3 years. And there are increasing reports of taking even longer now due to the massive workload the credit crunch has brought about in legal court procedures (lawsuits, repos etc.) Yours faithfully, Raymundo Larraín Nesbitt

• John Says:

  Wed, Nov 4th 2009, 10:30

  Hello, the electricity board have cut off the supply as i could not afford to pay the bill. How do i go about re-instating the electricity if i can only afford to pay a little amount? Is there any government assitance with mortgage payments similar to mortgage interests payments in the UK? thank you

• Lawbird Lawyer Says:

  Wed, Nov 4th 2009, 10:32

  Dear Sir, Yers there's a programme but if your bank is in the process of repossessing you, you do not qualify. Besides, very few people can actually qualify for it. There's simply nothing you can do about the elctricity unless you pay the outstanding debt in full to the utility company.

• Unregistered Says:

  Wed, Nov 4th 2009, 12:42

  The bank have started possession proceedings, the property was subjected to a public auction but no bid was made. The bank have now started possession proceedings. What i'd like to ask is that if i live in the property until it is repossessed - will I have to pay the monthly mortgage payments? Or do monthly payments stop once bank starts possession proceedings and i only owe them the debt? thank you

• Lawbird Lawyer Says:

  Wed, Nov 4th 2009, 12:46

  Dear Sir or Madam, The repossession procedure is taking place because you defaulted on your monthly mortgage repayments. It's rather pointless at this moment in time, post auction, to service your mortgage.

• mrs jones Says:

  Thu, Nov 5th 2009, 22:02

  Hello I could not afford to pay my mortgage in Spain, after I returned to the U.k I only paid half of the monthly amount I tried to negotiate nterest only but thet would not have it. I finally told them in Aug 2008 I couldnt pay anymore. I have not heard a word form them since, untill monday eve 2nd Nov 2009 at 5.30 GMT, An Englishman called and told me he was calling from my mortgage company and wanted to assist me in trying to sell the property, I told him I was driving and couldnt What do you make of this? do you think it was a debt collector? and why do you think they havent contacted me in over a year.

• Mrs Jones Says:

  Fri, Nov 6th 2009, 10:13

  sorry I meant to say that, I was driving and couldnt speak at the moment.

• Lawbird Lawyer Says:

  Fri, Nov 6th 2009, 11:36

  Dear Mrs Jones, It would come as no surprise on them being a debt-collecting agency. Many people are already reporting receiving threatening leters from UK law firms or UK debt collecting agencies as a result of having defaulted on their Spanish Mortgage or else not having completed on a Spanish off plan property when the First Habitation Licence has been attained. Many people were in a state of disbelief thinking they could get away from it all flying back to the UK leaving the Spansh debt behind. Sadly, this is not the case. Or they were either naive or ill-infomed. Many weren't even aware that on signing a Spansih mortgage you are held personally and unlimitedly liable for the loan with all your assets, both now and in the future. And that includes those in the UK as well. One must realise is that a full repossession procedure in Spain is taking now an average of between 2-3 years as law courts are clogged. Many people thought they were safe as 1 or 2 years had gone by since returning from Spain and they had not heard a word from their bank. And then one day out of the blue you receive a nasty recorded letter or else a phone call from a UK law firm or from a debt collecting agency demanding payment on behalf of the Spanish lender or developer with all the accrued interests. Through our legal articles and blogs we endeavour to create awareness on this issue, and many others, to avoid borrowers or off plan purchasers getting themselves entangled in further legal and financial problems. Yours faithfully, Raymundo Larraín Nesbitt

• Paul Says:

  Mon, Nov 9th 2009, 20:39

  Hello, We have a 100.000e mortgage of which we now only owe 93.500e we live in the house here in Spain. But as from tomorrow we will be 3 months in arrears with our mortgage apart from a small payment of 300e which we managed to pay during the last 12weeks. the house has been on the market for a while and has now been reduced to 140.000e we received an email to day from our bank as follows: Hello, Tomorrow you will have 3 monthly repayments of the mortgage unpaid, this means we can not stop repossession any longer, because of the new mortgage law we have to present all documentation to judgement, as a provision of funds for the barrister to carry on the claim we will charge you around 5.000 Euros and this amount of money will be included in the debt, as you know with the new expanish law your mortgage is being considered as a high risk mortgage and the procedure to reposses the property will be express. As the market is down, in a possible auction the bank will not cover the total amount on debt, threfore you will end up loosing your property and you will still be a debtor for rest. From now on we will no longer have your file in our branch and all documentation will go to our Juridic department, we will not have information in the computer in our branch and everything you want to do will have to be done in our headoffice and with their permission. I am sending a copy of this e-mail to our juridic department called USRI ... A family member has offered to loan us 800e to give to the bank. If I make this payment tomorrow would they still be able to carry out the repossesion? we are worried sick because we have no other money nor property. We can not go back to the UK as we have no were to go, also my wifes 85year old mother lives with us who is unwell, so you can understand my mother -in-law's safe care and keeping a roof over her head is very important to us but also very worring. The monthly mortgage payments are 570e but i have no work now. what should i do? sorry this is so long but were at our wits end with worry and do not know were to turn. We think we have someone interested in buying the house from us but all we seem to lack is . The bank is awear that we are trying hard to sell it, also our estate agent has been intouch with them to inform them that he thinks the house will sell soon because it is now well below the market value. if they start the proceedings tomorrow will we still be able to sell it if this person wished to purchase it? and if we paid them 800e would this hold them off for a month or so? many many thanks for this excellent website. kindest regards Paul & Family

• Lawbird Lawyer Says:

  Tue, Nov 10th 2009, 13:21

  Dear Sir, First of all let me start by writing that I regret what you must be going through. As per my article on bank repossessions from last year 2008 which starts off this thread, banks normally wait 3 months to start repossession proceedings, but not always. There's an article on the Spanish Sur that was printed yesterday Monday on the matter of what happens to a borrower when they stop paying their Spanish mortgage: http://www.diariosur.es/20091109/malaga/pasa-dejo-pagar-hipoteca-20091109.html You can at anytime, prior to the court hearing, pay waht you owe, the outstanding balance which will be after 3 months are over: 1.- Lawyer's fees: normally between 8,000 -12,000€ 2.- Court agent's fees: approx 3,000€ 3.- Arrears 4.- Compounded delay (penalty) interest on the arrears You have to pay all the above lump sum to successfully stall the repossession procedure. Any attempt or suggestion to your lender to pay in installments will normally be turned down on exceeding 3 months in arrears. I'm afraid the 800€ will just not do to stop teh repossession. Please read other similar queries to yours: We are in 3 months of mortgage arrears with a Spanish bank for two properties the developer have not completed properly. What are our options? What are my options if I have fallen in arrears on my Spanish mortgage? Yours faithfully, Raymundo Larraín Nesbitt

• Unregistered Says:

  Tue, Nov 10th 2009, 17:12

  Hi - we have a two year tenancy on a property. We have paid the rent but have just found out that the owner has not paid the mortgage or a loan he had taken out for over a year. There has been a court hearing and an annotation of pre-embargo for the loan amount and costs was registered in April this year. Is this repossession proceedings or is it just to secure the loan against the house? Would the two be done together. No date has yet been set for first auction. As tenants, can we be evicted and, if so, will we be given any notice? As no date has yet been set for first auction, how long do you think we may be able to stay in the property? I am worried as we have only just paid for the second year's rent.

• Lawbird Lawyer Says:

  Tue, Nov 10th 2009, 17:28

  Dear Sir or Madam, You cannot be evicted on a repossessed property providing you continue to pay the let, don't worry. As a tenant you are (over)protected by law (Art 13 of Spain's Tenancy Law). I take for granted you have already lodged your tenancy contrcat at the land registry where this property is located. You will be considered a long-term tenant (5 years). You may be offered to leave the property for a suitable settlement. It will be up to you to accept the offer. Yours faithfully, Raymundo Larraín Nesbitt

• unregistered Says:

  Wed, Nov 11th 2009, 08:53

  Thank you for the assurance however, we have not logged the tenancy contract with the Land Registry as we were not aware it was possible or necessary. Will this mean we are not protected or can we register it now?

• Lawbird Lawyer Says:

  Thu, Nov 12th 2009, 11:36

  You're welcome. It' doesn't mean you are unprotected, it only means it's more advisable for your best interests, specially if there's a risk of someone buying the property in the future from your landlord. Long-term contracts should be lodged at the land registry, it's always advisable so that third parties cannot allege they were unaware of this. You have a specific sub-forum on Landlord and Tenant issues over here: Landlord / Tenant Issues Yours faithfully, Raymundo Larraín Nesbitt

• David Lightbown Says:

  Mon, Nov 16th 2009, 07:09

  A very informative site. I have talked to 2 banks for friends of mine who have problems and I found them helpfull but being able to talk to them face to face was the key. I have had a call from another person who has asked me to speak to his bank and the information on this site will help me help him Thankyou PS I am aware that a little knowledge can be dangerous

• Lawbird Lawyer Says:

  Mon, Nov 16th 2009, 09:55

  Dear David, Thank you for your kind words. That's why I've posted over and over again that it's important to build rapport with your bank. You must meet them in person, speak to them, let them know of your financial situation and that you are willing to help not to just walk away of the problem. Banks greatly appreciate this and can return the favour through interest-only, waiving commissions, daciones en pago de deuda (handing over the keys to the lender) etc. Your bank is not the enemy, it's the debt incurred. It's extremely helpful to get along with your bank always. Yours faithfully,

• K.B. Says:

  Wed, Nov 25th 2009, 23:26

  Dear, We are British homeowners (in Spain). WE have two properties in Spain, both on mortgage, my husband was made redundant in June, we went both to the first house bank (they are in different bank) and we have given the Manager the paper for redundancy, he put it on his desk and I was quite sure he will do nothing of it. lately we started being harrassed by the branch manager to pay four remaining quotes since July. My husband tried to explain he lost his job but at the end he went to Spain for the second time today to up to them sign a remortgage, firstly as they are very far from were my husband is, he asked the ''Manager ' to explain to him and send him in writing how much shall we be paying exactly after the 3 years of temporary remortgage they are giving us (I dont unserstand why it has to be 3 years and not a remortgage as normaly should be as we are only 40 yrs old and this house has been mortgaged for 15 yrs only and given ur age we can extend upto 35 years if Iam not wrong. Anyway, the manager showted at him that she cannot give him anything in wirting and told him anyway he has to come back in January to sign they cannot do it now (we do have all her emails anyway abt the situation and the different stories she was saying so far) my husband said he cannot go back as he has a job offer for january, she distroyed the documents she has to give him to sign and told him to go to court... I was very surprised when he called me and told me how they behaved, i called her and she said i cannot talk to you , we have wasited too much time on you.... and hangged up the phone on me. Very professional though... Anyway, Iam worried we leave the situationas it is because they are not giving us any choice and they will start chasing our other property for debts against the first one... please hel,,,, we are so confused. Regards K

• Lawbird Lawyer Says:

  Thu, Nov 26th 2009, 11:37

  Dear Madam, I'm sorry to hear your case which sadly has become commonplace. Your lender is now probably going to repossess your Spanish property. If there's a shortfall after they've repossessd you they may pursue your UK assets as well. It's similar as to how it works out in the UK: Banks still chasing families for mortgage debts after repossession The details on how this works in Spain are explained in the article that starts off this thread. Yours faithfully, Raymundo Larraín Nesbitt

• Martin and Adrian Says:

  Mon, Dec 7th 2009, 12:38

  We have two mortgages in spain one on each different property. For over 12 months now we have not paid any mortgages because we have tried to negotiated with our bank (Bano Popular) the way forward they have for 9 months given us false hopes and we complete on Wednesday on the sale of one property. We sold the property at 229,000 euros and had a mortgage of 150,000 euros but unknown to us the bank has taken some mortgage of our 2nd property and put on the first property with arrears and the buyer is having to pay they extra another 24 thousand euros we have lost all the profit and our buyer is paying in total aroun 252,000 euros. We do not get anywhere with the bank and feel let down the other property is in profit and we only now have 169,000 euro mortgage we cannot service this mortgage and we have asked for a complaint form for at least 9 months whioh they keep refusing to give us one. Is there anything we can do. We have lost everything like many others but want to stay in spain as the uk in our view is finished.

• IzzyM Says:

  Tue, Dec 8th 2009, 13:04

  My neighbour was about to be repossessed on two houses in this village, so she sold off all the contents for next to nothing before leaving for the UK. However, she also ripped out all the bathroom fitments, sold all the internal doors and frames, a complete fitted kitchen that the builder had installed, and all the swimming pool housing contents. The bank doesn't know the extent of the damage yet as there is a fiesta here just now. I am interested to know what kind of penalties she will face?

• IzzyM Says:

  Tue, Dec 8th 2009, 16:50

  Also, I have just witnessed the descruction carried out in the second house, an old townhouse, it has been vandalised, there is no other word for it, everything, cupboard, doors, chimneys, bathroom fitments, have had a sledgehammer taken to them. It's ruined. The other house was new - only 6 years old but has been reduced to bare shell, still with external walls, windows, and doors only. I am worried because this lady plans to return in a few weeks to collect the payments owed for the last of her belongings that she left with a friend to sell. Is this damage considered 'criminal'?

• deblew Says:

  Sat, Dec 12th 2009, 17:18

  My parents live in Spain permanently. Their property is worth approx 300,000 euros in today's market. They have a small mortgage, 25,000 Euros, but as retired folks have minimal income. They are now struggling to meet the monthly payment of 400 euros. They have approached the bank who refuse to let them go on to interest only payments. They are looking at Equity release but cannot get this whilst they have a mortgage. They feel their only option is to hand the keys to the bank. Can you suggest any alternatives?

• doris Says:

  Sun, Dec 20th 2009, 16:53

  Thank you for this informative site. A friend of mine is in a similar situation and having defaulted on payments for over a year, he was niave to think that the bank would just repossess the house and that is all. As I have read from here, since he has defaulted he can no longer just hand over the keys. What is your best advice regarding this? He has received a letter from a UK based debt collector offering a 20% discount if the debt is cleared within 30 days... does that mean the debt has been sold from the Spanish bank to a debt collector now? I'm not sure if that means repossession is in progress? I believe the mortgage sum outstanding is not massive (around €70,000) although it is significant. If he has no means of paying this, will the debt collector (whether acting on behalf of the bank) accept repossession??

• Lawbird Lawyer Says:

  Fri, Jan 8th 2010, 11:53

  Dear Martin and Adrian, You can write a complaint and send it to their Complaint´s Department. If they are not forthcoming with areply you can then lodge a complaint before the Bank of Spain on your matter. In this case their complaint´s department is centralised in Madrid: http://www.bancopopular.es/popular-web/atencion-cliente.htm Yours faithfully, Raymundo Larraín Nesbitt

• Lawbird Lawyer Says:

  Fri, Jan 8th 2010, 11:56

  Dear IzzyM, That falls to the bank to pursue it or not. Some and some don´t. Yours faithfully,

• Lawbird Lawyer Says:

  Fri, Jan 8th 2010, 13:56

  Dear deblew, It would seem your parents can only return the keys to their lender as they have no other option. The procedure to follow is explained clearly on this thread which has links to the article explaining it in even more detail: handing over the keys to the bank - 24th February 2009 Unregistered Please contact us if we can further assist your parents on this matter. Yours faithfully,

• Lawbird Lawyer Says:

  Fri, Jan 8th 2010, 15:37

  Dear Doris, You´re welcome. As I've written in many replies, Spanish lenders at times sell on these debts to local debt collecting agencies for anominal value (i.e. 70% of teh debt) who will then pursue you. You can reach an agreement with said companies to pay in installments. Following your query, if they are offering him/her that option it´s because probbaly repossession hasn´t concluded or hasn´t even started yet. They may have already started the repossession procedure however. Even when a repossession procedure has been initiated you can still clear all the arrears. You normally have 18-24 months until the auction. If you clear it before the hammer goes down you can successfully avoid the repossession. But you will now have to come up with all the following: 1.- Lawyer's fees: normally between 8,000 -12,000€ 2.- Court agent's fees: approx 3,000€ 3.- Arrears 4.- Compounded delay (penalty) interest on the said arrears You have to pay all the above lump sum (no installments) to successfully stall the repossession procedure. Prior to initiating the repossession procedure a debt collecting agency may contact you, such as your friend´s case, to offer him/her to repay the debt in installements. My advice, as always, is to do everything possible to avoid this repossession scenario. You must draw the red line at this point to avoid yourself a financially compromised future. Yours faithfully, Raymundo Larraín Nesbitt

• Stefan Says:

  Wed, Jan 13th 2010, 01:26

  What a great help this website has been. I was stung 5 years ago with didgy English estate agent. Paying well over the odds. But my question is like most others, I have a property in Spain and with the Pound being so weak the mortgage payments willbecome difficult after March. I saw this coming back in august 2009 and went to see the bank manager. He is a nice guy, we communicated on his computer using bablefish. He said I could lenghthen the mortgage but the cost would be 2,000 euros. That seems alot. My house is up for sale and I just want an interset only until the house sells. Are there no such things as interest only mortgages if you are struggling or is it up to the managers discretion? Incidently after our meeting he took me across the road and got me half drunk. So not all bad. PS- To everyone out there stick in an follow the advice on here, in a weird kinda way its nice to know that we are not alone with our worries and concerns.

• Lawbird Lawyer Says:

  Wed, Jan 13th 2010, 10:09

  Dear Sir, Thank you for your kind words. It's at the lender's discretion to give you interest-only, yes. It is not compulsory for them to offer it. Have you read my blog post on swapping over to interest-only? Spanish Mortgages: No Tax on Term Extension or Swapping to Interest only Friday, June 26th, 2009 Yours faithfully, Raymundo Larraín Nesbitt

• Richard Linda Says:

  Tue, Jan 19th 2010, 12:39

  I have an apartment in Murcia with a loan from Cajamurcia. I have lost my job and asked Cajamurica to take back the apt under the 'Dacion en Pago' procedure as discussed here. They have not started repossession procedures, I am not in arrears and the apt is in small positive equity so met all the criteria you discuss but they they have refused saying that I needed to have paid back 15% of the capital before they consider it. What can I do now?

• Lawbird Lawyer Says:

  Tue, Jan 19th 2010, 12:49

  Dear Sir, A debtor is in his legal right to request that his lender accepts assets (an apartment in your case) to fully or partially discharge your mortgage liability. If your lender is refusing your petition, you have no option other than to hire a lawyer and challenge them at court enforcing your rights which are enshrined by our Civil Code. With even more reason if the apartment is in positive equity. Yours faithfully, Raymundo Larraín Nesbitt

• Reberto Says:

  Wed, Jan 20th 2010, 13:36

  Hi, I have a spanish house and this was bought by myself and my partner in 2006 - We since split up, and although the mortgage was in both our names, I was left paying the bill. I could not afford to pay all the mortgage but did so as long as possible then reducing to half which was affordable, but without her contribution it was not possible to keep this up for long and thus got further into debt. Eventually I sent a recorded letter and email to the spanish bank saying I could no longer keep up the payments and asked them to take the properity in exchange of the outstanding debt, this was early 2008, I have heard nothing since, no chasing of debt, no emails no calls until today I recieved the following message. We have just been advised via a telegram that the Bank is starting court proceedings to repossess your property in Spain. We are not sure you were told about it as we were the proxy at the time of the purchase. This is sent for information only. I would be willing to settle the debt, but wonder how much this would be as they Value on the villa at time of purchase was 159000 euro's and the mortgage left owing was 109000, does that mean if they sell in auction they cannot go below 50% of its worth or its mortgage or does it get revalued, and will they accept me paying half the deby left owing as this was in joint names?

• Lawbird Lawyer Says:

  Wed, Jan 20th 2010, 15:45

  Dera Sir, I refer you to post 93 on this thread which explains what you have to pay now to avoid a repossession. It doesn't matter if you owe all, half or 1% of the property; you are liable for the full amount of the loan jointly or severally with your ex-partner on defaulting. You will be expected to pay in full lump sum the breakdown detailed in post number 93 if you are to stall successfully the repo. Failure will result in you being repossessed. In which case, as explained in my article which starts off this thread, in no-one bids in the public auction the value of the property will drop 50% as per our Civil Procedural Laws and your lender will adjudicate itself the property. If there's any shortfall between what you owe and the value fetched by the property in the auction (very easily) you will be held personally liable with all your assets both now and in the future. As I also explain in this very thread on repossessions, no-one is bidding in these public auctions (unless the house is in a prime location i.e. beachfront) because the mortgage liability on these overvalued assets frequently exceeds the value itself of the underlying asset defeating the whole purpose of acquiring it. In other words, a flat that is worth 120,000€ has a mortgage on it for 175,000€ so no-one will want it because you cannot resell it and make a profit. Even professional bidders are out of the picture. That's why banks have set up all these real estate agencies that I reported back in early 2008: Pssst! Looking For Cheap Spanish Property? - October 5th, 2009 by raymundo Lenders need to get rid of their property portfolios and now they are targeting foreign institutional investors than can shift hundreds of properties for sizeable discounts. Yours faithfully, Raymundo Larraín Nesbitt

• maggie Says:

  Mon, Jan 25th 2010, 20:17

  We have been lucky to sell our holiday apartment in spain, which we purchased 8 years ago. We are being paid in euros which we will deposit in our english bank where we live. Are we better off financially by the Euro being strong against the pound, whereas 8 years ago, the euro was weak. Thank you for your help

• Lawbird Lawyer Says:

  Tue, Jan 26th 2010, 09:49

  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

• Jon Says:

  Thu, Feb 4th 2010, 16:41

  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

• Lawbird Lawyer Says:

  Thu, Feb 4th 2010, 17:28

  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,

• Jon Says:

  Thu, Feb 4th 2010, 18:32

  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

• Lawbird Lawyer Says:

  Fri, Feb 5th 2010, 09:37

  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,

• mea kerr Says:

  Fri, Feb 5th 2010, 12:38

  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

• Lawbird Lawyer Says:

  Fri, Feb 5th 2010, 13:06

  Dear Ms Kerr, I copy you in my article: http://www.eyeonspain.com/forums/posts-long-5402.aspx - 3rd September 2008 Advice to Struggling Mortgage Borrowers 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. 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. 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. Contd. below:

• Lawbird Lawyer Says:

  Fri, Feb 5th 2010, 13:08

  In Conclusion My advice is to draw the 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

• mrs lewis Says:

  Tue, Feb 16th 2010, 15:21

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

• Lawbird Lawyer Says:

  Tue, Feb 16th 2010, 15:55

  Dear Madam, That will not thwart the procedure.

• Stefan Says:

  Sun, Feb 28th 2010, 20:08

  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 Says:

  Tue, Mar 2nd 2010, 11:32

  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: Artículo 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 Larraín Nesbitt

• Stefan Says:

  Wed, Mar 3rd 2010, 04:34

  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 Says:

  Wed, Mar 3rd 2010, 09:54

  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 Larraín Nesbitt

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