This is the blog you should read if you cannot afford the monthly mortgage payments of your property in Spain.
Spanish mortgage settlement – Dacion en pago
Dación en Pago or Dation in Payment means handing the keys of your property back to the lender (bank) by the signing of deeds in front of the Spanish Notary. In exchange the bank will discharge the mortgage liability. As a result of it, the lender will renounce pursuing the debt in your home country or chasing any other assets you may own.
Dación en Pago is regulated by Royal Decree Law 6/2012, of March 9, on urgent measures to protect mortgage debtors without resources. It was adopted to attend those cases where there is financial impossibility to pay the monthly payments.
Therefore, Dacion en Pago is a very favourable alternative for the mortgage holder because, by giving the property to the bank, the cancellation of the debt is immediate.
How can I ask for dacion en pago?
We need to take into account that the bank is not obliged to offer Dacion en Pago. It is the debtor who should offer the lender the option to negotiate by a formal letter.
Once the bank accepts to study the case, the debtor should prove his unaffordability of the mortgage by submitting financial documentation. As we have previously said, the basis of the settlement is the unaffordability of the mortgage payment, so documentation which provides evidence of the client´s financial situation must be provided to the bank.
Although Dacion en Pago is not a complex legal process, we recommend you to hire the services of a solicitor to deal with the case. The solicitor should have experience in these material.
What are the advantages?
The main advantage of Dacion en Pago is that the mortgage debt will be cancelled in exchange for the return of the property to the bank.
It can be another advantages, depending on the case, which can be that the IBI (council tax) and community debts are also cleared by the lender.
What are the disadvantages?
Although Dacion en Pago is a great relief to those who cannot meet their mortgage payments, there are some minimum disadvantages:
- It is an exit for those clients that cannot afford another monthly payment. It does not suit all clients. It is essential to study each case before starting the process.
- The funds paid in to the property both at initial time of purchase and on a monthly basis, will not be returned to you.
Recent cases of dacion en pago
Although each case is different, and negotiations can take from 3 to 18 months depending on the mortgage debt, the state of the property, current valuation of the property, etc, if you have a mortgage in Spain and are struggling to meet the monthly payments, we recommend you to ask for Dacion en Pago.
There are some examples for recent cases of Dacion en pago:
Example 1
- Date: March 2020
- Property location: Oropesa del Mar – Castellón (Comunidad Valenciana)
- Bank: Banco Popular (currently Banco Santander)
- Initial mortgage: €188,900
- Mortgage outstanding: €173,269.47
- Current property value: € 78,320.70
- Outcome: The bank agreed Dación en pago (mortgage settlement). The ownership of the property was returned to the bank and the mortgage cancelled in full. The bank agreed not to pursue the client for the large shortfall. The client was not up to date with utilities and council tax, which were paid by the bank.
Example 2
- Date: February 2020
- Property location: Mijas – Málaga (Andalucía)
- Bank: Banco Sabadell
- Initial mortgage: € 199,880
- Mortgage outstanding: € 212,194.61
- Current property value: € 170,737.49
- Outcome: The bank agreed to the dación en pago (mortgage settlement). The ownership of the property was returned to the bank and the mortgage cancelled in full. The bank agreed not to pursue the client for the large shortfall. The client was not up to date with utilities and council tax, which were paid by the bank.
Example 3
- Date: December 2019
- Property location: Balsicas – Murcia
- Bank: Banco Sabadell
- Initial mortgage: € 95,861
- Mortgage outstanding: € 56,200
- Current property value: € 55,632.02
- Outcome: The bank agreed to the dación en pago (mortgage settlement). The ownership of the property was returned to the bank and the mortgage cancelled in full. The bank agreed not to pursue the client for the large shortfall. The client was not up to date with utilities and council tax, which were paid by the bank.
Example 4
- Date: November 2019
- Property location: Hondon de las Nieves – Alicante
- Bank: Banco Sabadell
- Initial mortgage: € 121,618.44 €
- Mortgage outstanding: € 115,000
- Current property value: € 120,779.40
- Outcome: The bank agreed to the dación en pago (mortgage settlement). The ownership of the property was returned to the bank and the mortgage cancelled in full. The bank agreed not to pursue the client for the large shortfall. The client was not up to date with utilities and council tax, which were paid by the bank.
Example 5
- Date: October 2019
- Property location: Orihuela – Alicante
- Bank: Banco Mare Nostrum (currently Bankia)
- Initial mortgage: € 143,173.14
- Mortgage outstanding: € 96,750
- Current property value: € 87,500
- Outcome: The bank agreed to the dación en pago (mortgage settlement). The ownership of the property was returned to the bank and the mortgage cancelled in full. The bank agreed not to pursue the client for the large shortfall. The client was up to date with utilities and council tax, which helped the negotiations.
Example 6
- Date: October 2019
- Property location: Corvera – Murcia
- Bank: Banco Santander (previously Banco Popular)
- Initial mortgage: €147,000
- Mortgage outstanding: € 88,512.19
- Current property value: € 62,447.50
- Outcome: The bank agreed to the dación en pago (mortgage settlement). The ownership of the property was returned to the bank and the mortgage cancelled in full. The bank agreed not to pursue the client for the large shortfall. The client was up to date with utilities and council tax, which helped the negotiations.
Example 7
- Date: September 2019
- Property location: Corvera – Murcia
- Bank: Banco Mare Nostrum (currently Bankia)
- Initial mortgage: € 159,269.46
- Mortgage outstanding: € 154,900.50
- Current property value: € 89,977.50
- Outcome: The bank agreed to the dación en pago (mortgage settlement). The ownership of the property was returned to the bank and the mortgage cancelled in full. The bank agreed not to pursue the client for the large shortfall. The client was not up to date with utilities and council tax, which were paid by the bank.
Reuters Solicitors continue to represent clients who have difficulty paying their mortgage in relation to their property in Spain.
If you have a mortgage in Spain and are struggling to meet the monthly payments, please contact us.
Reuters Solicitors has experience in helping international clients with mortgage difficulties in Spain.
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