How does the repossession process in Spain differ from other countries
In many countries a bank has certain obligations to try to resolve a loan in default situation by offering counseling and agreeing short term measure to assist customers in difficulties. If all this fails the bank goes to court to obtain the right to force a sale. What happens after a property has been repossessed in terms of sale, often has laid down guidelines that help ensure the bank takes all steps to obtain the highest price possible.
The amount owed to the bank is the difference between the final price obtained and the mortgage left outstanding including all costs. The banks can still in many circumstances then pursue the individual for any amounts not covered by the sale unless this person has declared Bankruptcy. For advice on your situation contact our legal team.
What are the key differences in Spain
The banks In Spain have no obligation to try to agree with the customer short term changes to their Spanish mortgage and have no appetite in general to agree to changes that might help a customer. This is partly because of the rules implemented by the Bank of Spain on provisioning which does not allow for the Spanish Bank to maintain a loan in arrears; and restrictions within what constitutes a change to a mortgage deed and the fact that changes to a mortgage can instigate it being deemed as a new mortgage which in turn causes tax known as AJD and Notary and Land registry costs to be incurred.
Do any Spanish Banks allow for re-negotiations of terms
If there is a desire by the Spanish Bank to find solutions adapting the loan terms is still possible. Some lenders have found legal ways round offering temporary interest only facilities and few other Spanish Banks have allowed extension of term to reduce monthly payments without affecting the mortgage deed. In all instances however this has to be for customers who have dealt with an issue before arrears happen or have been able to clear any mortgage arrears. Once in arrears negotiation to maintain the mortgage and agree changes to assist customers are more or less zero.
Agreed payment holidays for Spanish loans in arrears is not possible and will not stop the legal process.
The Spanish Repossession Process Explained
What will happen if I go into arrears on my Spanish Mortgage
The process of repossession in Spain is long winded and costly, these costs are added to the loan outstanding. Each loan has a penal rate written into the deed. This penal rate is applied on top of interest and capital due from the minute a loan is late or fully in arrears. Normal Penal Rates are between 3% to 12% but can be higher and are recorded at signing of the mortgage deed.
When do Banks in Spain take action on arrears
Because the process is long winded in general Banks take action early. If a Spanish Mortgage is 3 months in arrears almost certain the legal process will begin. Three months in arrears does not mean the loan has to have a full 3 months unpaid as may be the case in other countries, the 3 months in arrears can mean that 1 months payment was missed and the loan has not then been brought back up to date for a period of 3 months. Even if subsequently the next month was paid in full and so on the mortgage is still deemed to be in arrears.
How will I know if the Spanish Bank is taking legal action against me
First part of the legal process is that the Spanish Banks lawyers must take all steps to ensure they have communicated, to the mortgagee, the intention of legal action. Where a mortgagee is a resident of Spain this is easier and quick as papers can be sent registered post and signed for or papers can be served directly to the customer. For non resident Spanish mortgagees ensuring the customer has received notification is more difficult.
It is unlikely the customer resides at the house, the customer may have moved in the UK without notifying the Spanish Bank etc. The banks lawyers will try to ensure the customer is notified but from Spain it is more difficult for them to ensure this is the case. In many instances the notifications are ignored by customers who do not understand the long term implications of just allowing repossession to take its course.
What happens while the Banks lawyers are trying to contact me
Whilst the legal process requires the customer is notified; during the time it takes to ensure this has happened costs are mounting up. At this point only full clearance of the arrears and costs will stop the process. There now remains no ability to negotiate new payments terms or pay back what is owed over time.
If the Banks lawyers are unable to ensure the customer is formally notified and given a certain amount of time to clear the arrears in the full; they are required to post a notice on the board of the relevant court for that property. This notification must be in place for a full 3 months. If after those three months has passed the customer has still not contacted the lawyer or the bank to resolve the arrears the full court proceedings will go ahead.
What happens at the end of the legal process
All properties in arrears go directly to an auction called a Subasta. On the Nota Simple, of all properties in Spain where a mortgage is secured, it is recorded what the auctionable value is. The property cannot be sold at auction for less than 70% of the auctionable value. Normally but not always the auctionable value is the valuation given to the property at the time the mortgage in Spain was first set up.
If a property sells at auction the customer will owe the difference between the price gained and outstanding mortgage, legal costs and penal interest, this debt is not wiped out at sale of the property and the banks will pursue the outstanding amount.
What happens if the property does not sell at auction
If the property does not sell at auction the Spanish bank has 21 days to find a buyer or must take over the property themselves. They take over the property at 60% of the auctionable value and must pay purchase taxes etc based on this amount.
If unsold at auction; which is nearly always the case; the debt is then crystallised at the difference between 60% of the auctionable value and total debt outstanding.
If the Bank sells within the 21 days timescale, and before they take over the property, they can choose to sell at a price lower than the 60% of auctionable value. The Spanish Bank can only however pass onto the customer who held the loan the difference between 60% of the value and the total outstanding amounts owed including all costs, as of day of auction, as this is the final crystallised debt. Any loss below the 60% has to be taken by the bank.
What benefit is there for the Banks selling in-between auction and taking over property
The Bank in Spain may choose to sell between auction and taking the property over and write off themselves some further sums rather than have to pay purchase taxes and become responsible for the property in its entirety.
What debt in Spain will I owe after the legal process is completed
Whatever price the Bank finally sells a property at; whether this 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 60% of the auctionable value and the final outstanding amounts owed at day of auction.
Any agreement by the bank to sell below the amount they have taken property over at must be written off by the bank.
Will I get some money Bank if the sale price exceeds the amount I owed on my Spanish
What many customers do not appreciate is the repossession process in Spain also means that in the instance where the bank sells the property for more than the amount they took it over at, or even for more than the debt left, the best that happens for the customer is the bank can choose not to pursue them for the debt crystallised at auction.
The original owner will not be paid back any monies over and above the debt outstanding as is the case in other countries.
What does this mean for people with mortgages that are at low loan to values
This is a crucial point; many customers may believe it is better to allow the property to go to court than to sell before court action happens on basis there is some or enough equity in it for them to receive monies back or reduce amount outstanding. What the customer needs to be aware of is this will never be the case in Spain. Any future profit or contribution to debt made on sale of the property is the Banks money not the original owners and does not technically remove or reduce the crystallised debt.
How is the crystallized debt calculated at Subasta
- Mortgage capital outstanding € 200.000
- Auctionable value € 250.000
- Banks value 60% € 158.000
- Customer now owes difference between 60% of auctionable value and total debt so € 42.000.
- Sale price in excess of € 158.000 mortgagee owes € 42.000
- Sale price lower than € 158.000 mortgagee owes € 42.000.
Can the Spanish Banks pursue me in my country of residency
Any court order in Spain is applicable across Europe, where the customer originates from an EU country. The bank in Spain can take this court order and have it implemented for instance in a UK court.
Whilst it is difficult to see courts in other countries forcing their residents to sell their main home to pay back the Spanish debt, it is entirely possible that past debtors in Spain may in the future find earning attachments linked by the courts or being forced to sell assets that do not constitute their main residence to repay the debt.
Are the Spanish Banks likely to pursue me in my own country
This time round unlike in the 90’s the issues for the Spanish Banks is so vast they may be more inclined to take action to recoup outstanding debts. There is an inbuilt view within the Spanish Banks that many clients stop paying because they think they can just walk away from their obligations. Whilst this rather sweeping view is a little unfair and many other factors, like lack of ability of the Spanish Banks to communicate effectively, have a big impact, desperate banks battling to survive will do whatever they have to recoup monies owed.
Will an outstanding debt in Spain ever go away
Under Spanish Law a debt never goes away until it is finally paid so the issue could dog many buyers of Spanish Property for years to come.