Court stops bank pursuing couple for negative equity

A court in Navarre (North Spain) has thrown out a bank’s claim to pursue a couple for negative equity, creating a precedent that could turn the Spanish mortgage market on its head.

The judge ruled that by taking the property the bank had enough to cancel the loan of 72,000 Euros, even though there were no bidders when the property was offered at auction for half the loan, around 43,000 Euros, as required by law. The judge pointed out that the bank’s own valuation suggested the property was worth enough to cover the loan.

The judge also said it was “morally unacceptable” to go after the couple for more money.

BBVA, the bank, are going after the couple for the difference of around 28,000 Euros, and have appealed the decision calling it “irrational and arbitrary, in the strictly legal sense.” They will probably win on appeal.

Non-recourse vs. Personal Liability Mortgages

By law, mortgages in Spain are all personal liability loans, meaning borrowers have to answer with all their assets, present and future, until the debt is repaid. That contrasts with non-recourse mortgages in the US, where the worst-case for borrowers is losing their home and credit rating but nothing more. Hence the term “jingle-mail’ in the US, whereby borrowers walk away and post their house keys back to the bank.

Debt-for-property swaps are an option in Spain, known as “dación en pago”, but only if the lender agrees. If not, borrowers are stuck with their debts, and may end up paying off the mortgage long after the property is gone.

Now that Spain has 20pc unemployment and hundreds of thousands of repossessions, and clamour is growing to change mortgage laws that can trap families in a lifetime of debt.

The government has made it clear it has no intention of changing the law in the short-term. Doing so would harm Spain’s financial system, says Elena Salgado, Minister of Finance.

She didn’t rule out a change in future.



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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on