WHAT HAPPENS WHEN THE MORTGAGE CANNOT BE PAID IN SPAIN?
UNPAID MORTGAGE IN SPAIN
If your mortgage in Spain is in arrears, do not worry. REUTERS SOLICITORS has the solution for you.
WHAT HAPPENS WHEN YOU STOP PAYING THE MORTGAGE IN SPAIN?
Depending on the number of unpaid monthly mortgage payments, the options are different:
- LESS THAN 3 UNPAID MONTHLY MORTGAGE PAYMENTS: You can solve the situation by paying the sum of the outstanding monthly payments, plus interest and expenses.
- FROM 3 TO 5 UNPAID MONTHLY MORTGAGE PAYMENTS: It is possible to ask the bank for a Novation (modification of mortgage terms). With the Novation the mortgage will be extended in the length so the monthly payments will be reduced.
The Novation should be signed in front of the Spanish Notary (by attending in person or through a Power of Attorney (POA)), however, there are cases where banks agree to modify the mortgage without attending a Notary in order to reduce expenses. We recommend you to negotiate these terms with the bank before signing any document.
- MORE THAN 6 UNPAID MONTHLY MORTGAGE PAYMENTS: The bank can start legal actions in order to repossess the property.
Even if the bank has started the repossession process, the mortgage holder can halt the process by paying the arrears (principal, interest and expenses) in full.
WHEN DO BANKS START REPOSSESSION PROCESS IN SPAIN?
- Before a Law called “Ley 5/2019 reguladora de los contratos de crédito inmobiliario”, June 2019: Banks started legal actions after 3 months in arrears.
- After June 2019: banks must start actions after 12 months or 3% of capital in arrears for the first half of the mortgage term, and 15 months or 7% of capital for the second half of the mortgage term.
This new law helps debtors to find a solution (i.e.: selling the property, Dacion en Pago, Quita, …) before the bank repossesses the property.
WHAT SHOULD I DO WHEN I CANNOT PAY THE MORTGAGE IN SPAIN?
First thing first, it is essential to contact the branch of your bank in Spain and inform the bank manager about your current circumstances and your inability to keep paying the mortgage.
There are cases where it is almost impossible to contact /locate the branch or negotiate with them. In these cases, REUTERS SOLICITORS can assist you with this matter. A member of our team will locate your branch and the bank manager in charge of your case and we will deal with them in order to find the best deal for you.
As previously said, before the bank repossesses the property, the debtor can find a solution for his case, such as Dacion en Pago, or selling the property. There is always a solution for a debtor´s case.
HOW IS A REPOSSESSION PROCESS IN SPAIN?
Once the repossession process starts, the unpaid property will go to an auction (“Subasta”).
The auction valuation of the property is recorded at the Mortgage Deeds (the auction valuation has nothing to do with the current value of the property or the purchase price. It is a valuation given at the deeds only for the “subasta” purposes).
The property cannot be sold at auction for less than 70% of the auction value.
- Example 1:
- Mortgage debt: € 60,000
- Auction value: € 125,000
- 70% of the action value: € 87,500
- No debt for the client after the auction
- Example 2:
- Mortgage debt: € 100,000
- Auction value: € 125,000
- 70% of the action value: € 87,500
- The client will owe: €12,500
So, there are cases where the property is auctioned for a lower price than the mortgage debt. In these cases, the client will owe the difference between the auction price and the outstanding mortgage debt (plus interest and legal expenses). This debt is not written off and banks can pursue the outstanding amount, even in your home country through a Court Order.
In recent years, banks are not chasing these debts in client´s country because it is a very tough and expensive process.
However, it is necessary to highlight the fact that debts in Spain never become extinct until they are finally paid. As per Spanish Law, a creditor always has the right to claim his debt.
Even if clients keep a debt after the auction, REUTERS SOLICITORS will negotiate the outstanding debt with the bank in order to pay, reduce or cancel it. There is always a solution for a debtor´s case.
WHAT HAPPENS IF THE PROPERTY IS NOT SOLD AT THE AUCTION?
If the property is not sold at the auction the Bank/creditor can take the property himself.
The bank will take over the property for:
- 70% of the auction valuation of the property if the property is the main residence of the client.
- 50% of the auction valuation of the property if the property is not the main residence of the client.
Whatever price the Bank finally sells a property at; even if it is a lower amount than the amount they have taken it over at, they can only look to the customer in the future for the difference between 70% or 50% of the auction value and the final outstanding amounts owed at the day of the auction.
WHAT IS DACION EN PAGO?
DACION EN PAGO is a legal process by which the mortgage holder gives the property to the bank in lieu of the mortgage debt.
It is a negotiation with the bank which should be legalized in front of the Spanish Notary by signing a Dacion en Pago deeds. Once the deeds are signed, they are registered at the Land Registry so the property will appear at the bank´s name.
By signing Dacion en Pago deeds , the client will have no liability in Spain.
Reuters Solicitors in Spain will assist you with all the process:
- Drafting the Power of Attorney
- Negotiating with the bank the best solution for the client.
- Representing the client in front of the Spanish Authorities, community managers, Notaries, etc.
- Dealing with the registration at the Land Registry
- Cancelling all debts (community debt, IBI (Council debt), etc)
- And wiping out client´s name from any debt.
Do not hesitate to contact us for more information.
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