The Lawbird Tribune

For those unable to service their Spanish mortgage a dacion en pago, (datio pro soluto), is one of the proposed solutions we highlighted on our previous article and that Antonio Flores includes as well on a recent blog post.

In plain English, dacion en pago means handing over the keys to the bank, and in exchange the bank will discharge all mortgage debt not holding you liable in the future. They will also renounce pursuing the debt in your home country or elsewhere against any other assets you may hold. This solution of last resort puts an end to many people’s growing nightmare as the mortgage debt mounts up and becomes unbearable. On you defaulting a mortgage debt in Spain, the debt goes personally against you, not against the property itself. That is why many defaulting borrowers are realizing with shock that in despite of the lender having repossessed their Spanish property, they may chase you in the UK or elsewhere for the outstanding debt. 

The dacion en pago involves you signing a deed at a Notary Public by which the bank commits itself not to chase you in the future for the debt and consider it discharged for good. The catch is that the property must not be in negative equity. This is actually more difficult than people think because due to the easy credit of the last years the loan-to-value of properties was very high, too high in fact, hence all the bank related problems we read on a daily basis with massive write downs carried out by Lenders. People borrowed far too much and now their properties may have fallen below their initial loan. If this happens, the lender will be reluctant to agree to this dacion en pago because the property will have no equity left. In this case if a solution cannot be reached the bank will repossess the property. Banks can sell the non-performing mortgage prior to it going to auction. Transfer Tax of 7% has to be paid on the value of the property as if it were a normal conveyance. Some banks will impose that this tax burden is borne by the borrower.

So if you are finding trouble keeping up with your mortgage repayments or you reasonably foresee you may fall in arrears soon and your property is still in positive equity you may suggest this option to your lender. However, it’s only up to the bank to decide on whether they are willing to accept it or not. Some banks are reluctant yet others will consider it although a specific case-by-case study will be required.  

The bank will evaluate if this option is in line with its best interests and will determine the amount of equity left in the property commanding an updated appraisal if necessary. If the numbers stack up, they will accept it. You will both sign the deed at a Notary’s and that will be the end of the matter. We advise you to hire a lawyer to make sure your debt will be totally discharged; besides you will need an impartial translator acting for you.
 
It’s a win-win for both parties really. The borrower is free at last and has managed to secure successfully his assets abroad from the lender or any law firm or debt collection company 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 and expensive court procedure (repossession) without having to apply provisions to the Bank of Spain to make up for this dubious loan. These provisions set aside by banks are being looked upon closely by credit-rating agencies post credit crunch.

More than 48,000 owners will now be able to sleep well at night after majoress Ángeles Muñoz promised to include a new article in the new Master Urban Plan by which purchasers of good faith will be exempt of compensating for the regularisation of their illegal properties. In some cases some neighbours were liable for up to 12,000€.

Following up on our article of 2nd of October 2007 Marbella’s Town Hall will be provisionally approving the new Master Urban Plan (P.G.O.U.).  Marbella’s majoress has declared in a press release that it is a triumph of all to make developers compensate the Town Hall for the irregularities. As per our prior article, the risk there was before was that if a developer was unwilling to pay this compensation it would be up to the new owner, the innocent third party of good faith, who would have the onus of compensating the Town Hall to regularise thier newly purchased home. This will no longer be the case after the inclusion of said article which forces developers to compensate in all cases. The developers will be given a year’s deadline to comply voluntarily after which the Town Hall’s legal representatives will be able to execute the compensations due at developer’s expense. 

The new amended Master Urban Plan includes 6,000 of the 8,500 public appeals that were brought forth. That is 70% of them were accepted including appeals made by more than 350 Community of Owners.

The areas which will now become regularised at the developer’s expense will be: 1,008 dwellings in San Pedro de Alcántara; 3,351 dwellings in Nueva Andalucía; 1,708 in Nagüeles; 1,999 in Marbella; 533 in Río Real and 406 in La Víbora. This regularisation process will involve the developers both granting plots of land of their own as well as purchasing them only to hand them over to the Town Hall so as to restore Marbella’s public areas devised for general use such as future schools or green zones.

The goal of Marbella’s New Master Urban Plan is to create a reliable legal framework that restores confidence back into the real estate market. This will benefit both prospective purchasers and developers.

Notwithstanding there are still 500 inhabited dwellings on which a general consensus must still be attained. Concretely the majoress referred to Banana Beach, Río Real and La Víbora. The remaining 1,500 uninhabited illegal dwellings could find a public use in the future such as Elder Foster Care.

The new amended P.G.O.U. still needs to go again under a second period of public scrutiny should anyone be interested in making additional appeals. Once the Junta de Andalucía gives its final approval the Master Urban Plan will be definitely approved. It is foreseen Marbella will have its new Master Urban Plan approved for spring of 2009.

We are receiving a dozen queries every day asking about the legitimacy of certain offer, generally received by email or over the phone after a cold call. Unfortunately, we cannot analyze case by case, and therefore will provide a set of useful hints which will help you evaluate the legitimacy of the company or individual yourself.

The list below is provided in no particular order:

1. Is the domain name old enough? By means of a Whois search you can find out when the domain name was registered. If it’s only a few weeks old, be suspicious.
2. Are they using mobiles? – If the phones used as contact numbers are mobile numbers instead of land lines, it’s definitely not a good sign. In Spain, mobile numbers start by +34 6..
3. Have you been contacted out of the blue? – If you where cold called, or received an email from someone you don’t know, ask yourself why these people have your contact details.
4. Are you being requested to pay money upfront? This is the single most worrying point if it comes in conjunction of with one or more of the above.
5. Is the offer too good to be true? If the offer sounds too good to be true, it probably is.
6. Is the company properly registered? – Although it’s something positive if they can provide you with company registration details, you shouldn’t give this point too much importance. Fraudsters have been registering companies for decades with the sole purpose of deceiving (e.g. dozens of companies where incorporated by fraudsters to conduct the infamous Timeshare Resale Scam)
7. Is the address for their offices correct? – Not sure why, fraudsters tend to provide you with fake addresses which don’t really exist. Check any of the online street directories and find out if the address provided is correct.
8. Something strange about their names? Funny names such as “Woley Fernandez” or “Barrister Perez Santos ESQ” are names made up by Nigerians conducting 419 advance fee scams (the terms “Barrister” or “ESQ” don’t exist in Spanish law). Also, fraudsters tend to cite fake organisms such as “The Ministry of Finance” or “The Security Company”.
9. What others are saying – Use search engines to find information about the company. Try putting the company in inverted comas, and add terms like “scam” or “fraud”. The company or individual you mention might have already been reported online as fraudsters by other people.

Needless to say, the above list shouldn’t be taken as definitive, nor the absolute legitimacy o illegitimacy of a company established based on one or more of the above points. You can use it, however, to personally evaluate the risk of the transaction.

My recommendation is that you never pay any moneys upfront if you have been contacted out of the blue. However, if you have to, before doing so always suggest the use of an escrow company (chosen by you) to hold the funds until the product or service has been delivered. If they refuse, I recommend that you back off.

Always remember; have a lawyer analyze the transaction before making any up-front payments.

Today it has been confirmed that Spain will guarantee all bank deposits up to €100,000. Until today the minimum amount guaranteed by law throughout Europe was €20,000 in case a bank filed for bankruptcy.

In practice, UE members have the freedom to raise the yardstick as they see fit. Such has been the case of the United Kingdom which has raised this week the minimum amount protected from 33,000 to 50,000 GBP in retaliation to Ireland’s unilateral decision of protecting the full amount of their depositors funds. This has created liquidity problems to UK banks which have witnessed massive withdrawals of funds seeking the save haven of Irish banks. Following Ireland’s decision last week, Germany also guaranteed the full amount of private individual’s bank deposits on Monday the 6th October. Many other European countries have followed Germany’s example this week.

In view of the unilateral increases of Ireland and the United Kingdom, the European Union’s Finance Ministers (Ecofin) gathered and decided today to raise the minimum amount protected from €20,000 up to €50,000. All European countries will now be forced to guarantee at least the said amount having the liberty to raise it. Spain only protected €20,000 until early this morning.

Spain’s president, Mr Zapatero, held an urgent meeting yesterday in Madrid with Spain’s six most prominent banks and savings banks promising to raise the minimum protected amount above the UE’s new threshold of €50,000 without specifying any concrete amount.

We welcome these measures, as they should help reduce the sense of panic and bring back confidence in the banking system.

Some of you have probably recently read in the press that Spanish Inheritance Tax has been abolished, and have received the news with excitement! Well, I don’t believe that anyone is in a hurry to pass away to benefit from this supposed tax exemption, but it would indeed mean a relief for all of those concerned about the Inheritance Tax burden for our heirs when the time comes!

As our colleague Fernando Del Canto rightly points out in his excellent blog Tax Precision , the news is incorrect. Apparently, Spain’s Government has published in the English version of their site a press release in which they mistakenly claim that the abolishment of Inheritance Tax is to be approved.

The text, lost in translation, is as follows:

The Government approves the abolition of Inheritance Tax and 24 reforms aimed at economic recovery

Thursday, 14 August 2008

The president of the Government appeared after today’s extraordinary Cabinet Meeting to explain the economic reform programme that is focussed on six strategic sectors: finance for small and medium sized enterprises, housing, transport, energy, climatic change, telecommunications and the information society, and services. These reforms will take place during 2008 and 2009 with the aim of helping families and businesses, and preparing for economic recovery.
[...]
Adopted measures

The head of the Government announced that the Bill for abolishing inheritance tax, to come into effect from 1 January 2008, has been referred to Parliament. This represents a fiscal improvement of 1,800 million euros for approximately one million taxpayers.
[...]

We would like to confirm that, unfortunately, this is just an error due to a poor technical translation into English. What the Government meant to inform was that Property Wealth Tax, as already reported at large by the media, was to be abolished as from the 1st of January 2008.

As read on the Sur newspaper, more than 9,000 landlords have adopted in their tenancy contracts the Arbitrage System which allows eviction associated costs to be cut down significantly. Malaga is the Andalousian province in which this practice has been most successful. More than 8.980 Tenancy Agreements uphold the arbitrage system should one of the parties breach the contract i.e. non-payment.

This system was created back in 2004 and allows to significantly reduce both the associated expenses as well as the necessary eviction time compared to a normal court procedure (which normally averages at least 10 months). However, this system only works if both parties, tenant and landlord, abide the mandatory Arbitral Award something which does not always happen as non-paying tenants may only buying time with no real intention of paying the arrears.

The Arbitral Court guarantees that the case will be examined within 30 days, often even less. The main advantage would be the swiftness in which the arbitral award is obtained. This is particular important in cases in which the landlord offsets the rent against his mortgage repayments.

To apply for it is only necessary to request it in one of the 120 real estate agencies of Malaga province which are homologated by the Arbitral Court or simply including it as a clause in the Tenancy agreement waiving the ordinary court procedure. It only costs 42 Euros plus a further 300 Euros in case of a protracted conflict. A normal court procedure would have an average cost of at least 2.300 Euros. The second advantage would be the considerable amount of money it saves the landlord.

Another option available to the Landlord is to hire a Rental Insurance which cover the event of the tenant defaulting until he is effectively vacated from the property. These insurance companies will request the tenants’ payslips to ascertain their financial ability.

More information on the subject can be found on our article Landlord: Keys to Successful Rental Income

Thirteen local councils in Málaga province will revise and update the cadastral values (valor catastral) of properties within their limits, translating into increases which range from 80% to 300%. It is expected that the increase for residential properties will be no more than an average of 150%.

The increase in cadastral value is quite significant, as this figure is a benchmark which is used in calculating various taxes in Spain, such as IBI Tax, IIVT (or Plusvalía Municipal Tax), Wealth and Income Tax and the dreaded Inheritance Tax.  The cadastral value, which is generally well below the true market value of real estate, is regularly updated every decade or so, as not to significantly detach the taxable values from those of the market. The single most important factor that raises or lowers the cadastral value is the appreciation or depreciation in value of the land.

In the Málaga province these updates were carried in general in the 80s and mid 90s. The municipalities of Alfarnate, Arenas, Atajate, Benamargosa, Benaoján, Cútar, El Burgo, Cuevas de San Marcos, Gaucín, Jubrique, Málaga (city) Totalán and Abdalajís Valley will all be updating the cadastral value of real estate in their territory.  In some of these towns the cadastral value hasn’t been updated since 1989 such as in El Burgo or Gaucín. IBI tax may well even triple in these municipalities as from next year.

Important cities in Málaga province such as Estepona or Vélez Málaga already updated their cadastral values last year. However many other towns will also have to update them soon, such as Marbella (unrevised since 1988), Alhaurín de la Torre (1996), Benahavís (1996), Campillos (1996), Cártama (2000), Manilva (1997), Rincón de la Victoria (1999), Ronda (1998) or Torrox (2000).

Most owners have IBI tax set as a standing order against their Spanish bank accounts. Make sure that you have enough funds in your bank account before this tax is due (normally between June and September). Regarding Property Income tax (Property Wealth Tax is due to disappear next year), your solicitor will let you know how much this figure is.

All non-residents in Spain are required to obtain a non-residency certificate either if they already hold a bank account or if they are planning to open a bank account in Spain. Failure to do so may result in the bank blocking your account until this certificate is cleared. This implies that all invoices set as standing orders against your Spanish bank account, namely your mortgage repayments and utilities, will not be timely met.

The certificate must have been obtained in the 2 months prior to opening the Spanish bank account if you are opening a new one. This certificate will have to be renewed every 2 years. The process is identical to obtaining a NIE number. You may obtain it from either a National Police Station’s Foreigner’s Department or through the Spanish consulates in the UK or Ireland. You will have to queue and fill in the Spanish form with your NIE or passport number. The form is almost identical to the NIE number application.

If you do not wish to go through this hassle, you can always hire someoene in Spain to have it arranged for you. NIE Number Direct is currently offering this service for a very competitive fee. Please note that a Power of Attorney and a legalized copy of your passport is required.

Article from Times Online: http://www.timesonline.co.uk/tol/mon…cle4691513.ece