Repossessions in Spain
Since the crisis the Bank of Spain has insisted as part of their regulatory role that Banks in Spain make detailed reports to them on the situation relating to repossessions.
The first report was issued in 2013 so data is very new in its nature and it is difficult to extract from this any real long term relevance when assessing one year to another.
Never the less 2014 showed some marked changes to 2013 in perhaps the way in which the Spanish banks are treating defaulting borrowers particularly in the resident sector and where the house is the main home. Whilst not necessarily feeding through to the 2914 figures 2015 should show improvements.
Spanish Banks and there approach to defaults
Some of the changes in Bank behaviors have been driven by highly publicized concerns over the way in which Banks in Spain approached those borrowers, who due to unemployment or other factors out of their control, were unable to pay loans. Often the Spanish Mortgage had been agreed on a basis that had stretched the borrower to the maximum capability; they had even before they lost their job.
A lack of sympathy and empathy from lenders in Spain was very paramount in the early days of the banking crisis. Most Spanish banks took no measure to try and help in short term difficult situations and aggressively pursued a defaulting mortgage in Spain through the courts to forced repossession of the property.
Court action was always see as the right way forward by the Banks in Spain as not only did they get the property back, and ability to sell this on, but also immaterial of what level they finally sold for the property for the mortgagee would always continue to owe then money. In Spain the property rarely covers all the debt as a nominal sum of 60% of the auctionable value is always what is used as payment of debt not what finally the bank may sell for.
Spanish mortgage debt does not end until paid in full
Unlike other countries any outstanding debt will remain until it is paid and the Banks can get earning orders so a defaulting borrower will continue to have the debt affecting their life until such a time as it is paid back in full.
On top of not relinquishing the debt the borrower will also have lost their home.
Impact on Banks in Spain
Due to a high level of held properties which was proving unsustainable for the Banks to hold and changes to how they must write off value of the property held on their balance sheets, just holding a portfolio of housing stock has stopped being a positive way forward.
Aside from the financial implications of taking over holding property no longer being long term viable, the bad publicity in Spain for the Banks started to put real pressure on them to come up with alternative solutions. Given most of the Banks had been bailed out by the tax payer the Banks already had some work to do to endear themselves back to the public and lots of high profile evections of families from their homes was not helping.
For most Banks they now have a policy, where elderly or young children are involved and the property is a main residence, not to currently go to court to evict. This provides only a short term solution as ultimately finally the Bank will want their debt repaid but it has prevented many families from becoming homeless.
On top of not evicting the Banks are also now looking at ways of assisting Spanish mortgage holders by way of extending years, giving payment holidays or agreeing to take back the property known as “Dacions in payment of debt “ as full and final settlement, without going through the court process. The benefit for the borrower is that the property reverts to the Bank with no further and future obligations even if finally the property is sold at less than the original loan amount.
The benefit for the Banks is to avoid forced evictions and the costly and time consuming process of going through the courts.
2014 facts and figures for Spanish loan foreclosures
In 2014 Spanish mortgage foreclosures reached 0.7% of all Spanish loans and in the case of main dwellings this was 0.6%.
Voluntary repossessions where the mortgage holder was not forced out of the property made up 47.8% of all foreclosures and this 53.1% in the case where it was the principal residence.
“Dacions”, so property swap for full and final payment, accounted for 39.7% and in the case where it was the family home this rose to 45.2%.
For all foreclosures through the courts in 2014 90.8% related to dwellings that were not occupied and in the case of the family home this was 89.5%.
Forced evictions in 2014 totaled only 25.
In 87.6% of all foreclosures the Spanish loan was contracted prior to 2007 suggesting that only a small number of loans are now defaulting where the Spanish loan was taken after the financial crisis began and the Banks hardened criteria for lending.
When compared to 2013 the data showed that overall repossessions increased by 3.1% and for main homes this were up 5.6%.
Voluntary repossessions rose by 4.3% and by 8.9% for principal residences
Total number of Dacions rose by 2.8%
It is intended that this data will now be broken down in the future into more succinct formats including regional and type of property and the information will be gained and reported on by the INE on a more regular basis.
For nonresidents borrowers owning property in Spain who have bought holiday homes the Spanish Banks remain aggressive in their approach to defaults.