Mortgage Problems in Spain

You may have various options available to you, but it is vital that you understand what those options are before starting any formal procedures with your Spanish Bank.

Banks in Spain often think in a different way and therefore it is important that you understand what their priorities are before speaking to them.

If you do not understand how Banks think, what requirements Banks have and what their priorities are then it is very easy to get yourself into even more trouble by saying or revealing something that seems innocent, but which is then later on used against you by the Spanish Bank.

Worse than saying the wrong thing however is sticking your head in the sand and hoping that the problem will go away. It won’t. If you ignore the Bank the problem will simply get worse.

By failing to deal with the issue or engage with the Bank, the Bank will simply keep adding on late payment fees and interest penalties every month, which will make the amount due even greater. If the Bank in Spain eventually end up repossessing the Spanish property, the further addition of legal fees is likely to swallow up any equity that you may have in the property.

Just assuming that the Bank will not co-operate or assuming that because your own attempts at resolving the issue have failed means that nobody else can help is a common conversation we have with clients.

Obviously, you have to be realistic about your objectives and what can be achieved when negotiating with your Spanish Bank

The short answer is yes. Many people mistakenly- have been led to believe that because the property is in Spain, the Bank is in Spain and the mortgage debt is in Spain, that the Spanish Bank cannot come after them in the UK for the debt. This is certainly not the case.

In the majority of cases, the Bank in Spain will have a first charge on the property and are likely to attack that in the first instance. If they can sell the property through an auction process to cover the amount outstanding, then that would bring the matter to an end. However, if the value of the property is less than the amount outstanding then the Bank has a right to pursue a borrower for any shortfall.

The above scenario results in the Bank in Spain coming after any assets that borrowers may have in the UK and has in many cases resulted in charging orders being placed upon the property assets of borrowers in the UK due to the Enforcement of a debt Judgement obtained by a Bank in the Court in Spain.

The Banks of course always will balance whether it is worth pursuing the shortfall across borders due to foreign debt recovery being potentially problematic and expensive,

We are seeing more and more clients being contacted in relation to an outstanding debt which exists as a result of a previous Spanish property purchase. The clients are receiving legal demands directly from their Bank in Spain directly, via a UK firm of Solicitors acting for the Bank in Spain, or via a third-party debt collection agency or Vulture Fund acting for the foreign Bank.

Typically, these clients had previously purchased a property in Spain and due to their changing personal circumstances, took the decision (and the chance) to â€Åâ€Å“walk away” from their foreign property, believing their foreign lender would simply take back the property and not pursue them for any monies thereafter.

Read more here - I have received a letter from Axactor regarding a mortgage debt in Spain (judicaregroup.com)

A so-called Vulture Fund is an investment fund that will seek out and purchase securities in distressed investments. The objective thereafter for the Fund is to 'swoop in' and pick up under-priced assets at a fraction of the debt, with a view to collecting from debtors an increased percentage of the bad debts. This is particularly true within the European Banking sector in relation to non-performing property mortgages/ loans.

These funds then aggressively pursue the mortgage defaulters seeking to recover the amounts.  Companies like Cerberus, Blackstone and Axactor to name a few of the entities chasing clients in the UK.

You may have heard the term Dación en Pago. This essentially is a mechanism that allows you hand the property back to the Bank.

It has to be done by agreement with the Spanish Bank. The belief that you can simply hand back your keys is certainly not true and has in fact placed people in extremely severe positions when the Bank in Spain finally locate a borrower.

The vast majority of the Spanish Banks have signed up to a Code of Conduct in which they have agreed to always agree to a Dación en Pago if certain criteria are met by the owners of the property or the borrowers who took out the mortgage.

This system was brought in by the Spanish Government as a way of reducing the cost of repossession and providing a solution for the people who had taken out mortgages and who could no longer afford them.

If you comply with the requirements, then you can hand the property back to the Bank as full and final settlement for the mortgage debt owed.

What are the Dación en pago requirements?

In order to qualify for an automatic Dación en Pago it is necessary to comply with all the following requirements:

A restructure of the loan to make it more affordable must have been attempted.

The value of the property must be less than €200,000 in large cities and less than €120,000 in cities with less than 100,000 inhabitants.

The property must be the only home that the borrower owns anywhere, not just in Spain.

All family members of the borrower must be unemployed.

The mortgage was taken out to buy the property and is not subject to other guarantees registered on it.

The mortgage payments must make up more than 60% of the net family income

There are no other assets with which to satisfy the debt

Dación en pago by negotiation

Even if you do not comply with all the requirements for a Dación en Pago, it may still be an option for you. The individual Bank can, if they wish to, agree to take the property back from you in settlement of the amount outstanding to them under the mortgage

The requirements above only set out when a Spanish Bank, that has signed up to a Voluntary Code of Conduct, has to accept a Dación en Pago. Obviously, the more requirements you meet and the greater the equity on the property the more chance that we can negotiate a Dación en Pago with your Bank in Spain.

In some cases, we have even managed to negotiate with the Bank that they will take over the cost of running the property until it is sold and then give you back any difference between the amount that you owe them, and the price realised upon a sale.

If you wish to retain the property and simply want to negotiate over the terms of the mortgage, then this may be possible. Any negotiation and the final scope of the changes in your terms will be at the discretion of the Bank. Fundamentally however, the Banks in Spain would much rather re-negotiate with you over the terms of the mortgage and get to a stage where you are paying regularly rather than be in a situation where they have to re-possess.

The Banks remain probably the largest estate agents in Spain due to the large numbers of borrowers who have defaulted on their obligations in the past decades.

Some of the terms that be renegotiated include:

Periods of time in which your mortgage is interest only

Extending the length of the mortgage to reduce down the monthly payments

Reducing down interest rates

Writing off part of the amount outstanding to the bank

Naturally, factors such as the amount of arrears on the mortgage payments or the longer you have been ignoring the Bank can result in the Bank being less co-operative. It is therefore important to deal with an experienced firm of solicitors with specialist knowledge of these issues to negotiate on your behalf.