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Sadly, according with the latest figures, home repossession orders have been steadily rising. The number of homeowners facing repossession orders after failing to keep up with mortgage payments in many European countries is up. One of the main consequences of the credit crunch is more expensive repayments for new mortgages and a cut in the availability of deals. I would like to provide an overview of how the Spanish law deals with mortgage arrears and possession cases.
The terms are approximate, it depends of the CourtFIRST STAGE The borrower falls into arrears
At this stage the lender try to contact the borrower to get an explanation about the arrears and start to charge extras such as different interest rates an penalties. Mortgage lenders also attempt to renegotiate alternative arrangementsSECOND STAGE In default. 90 days after the first arrear
Lender’s debt collection department try the last attempt to recover the debtTHIRD STAGE Last chance 10-30 days after default
A duly attested summon (Requerimiento Notarial) or certified fax must be sent from the lender to the borrower informing about possession proceeding through the courtFOURTH STAGE Repossession order .One week after the summon. Legal action start against the borrower
The lender’s lawyer try to obtain a executory judgment for the payment of the overdue mortgage and by public auction the mortgage property will be sold.FIFTH STAGE The Court set a date for public auction 4-16 months after the legal action start.
If nobody bids, the lender will be the new owner of the house for 50% of the property value.
I have to say that the borrower always owe to the bank much more money than the property value. It must be added interest of arrears, demurrage, court costs etc. Although the house has been sold the borrower is still owing a lot of money so the lender will keep pursuing.
If you have a guarantor the lender will start the proceedings against him in order to obtain the rest of the debt.
The new owner of the property is registered in the Land Registry.SIXTH STAGE Eviction 6 months after the auction
Police Court, officers and a locksmith will evict the borrower. It is very difficult to evict if there are tenants or children and this circumstance is previously notified in the Land Registry. For example divorced couple own the house and one day none of them pay the mortgage. If when they got divorced they submitted in the Land Registry that use of the house would be for the spouse and the children the situation is that is quite impossible to evict the family but the debt remains -
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Two comments:
– before repossession, I think the bank will try to use the avalists (if they exist; very often they do).
– if the auction price is below the amount the bank requests, the borrower will lose his wages, dividends, … except for the “minimum vital” (around 600 euros, I think). The rest will go to pay the credit, which is not a mortgage anymore, but a personal credit probably, with consequent higher interest rates. -
Hi
Yep agree and thanks for that. 🙂
Now the Spanish Courts rule in favour of the developer and in this case the Bank.
We win cases and they appeal ,can we do the same. ❓
Banks have not honoured their agreements with regards to Bank Guarantees? Why should we .
Are there laws in Spain to protect both parties or is it as it seems just one way.Just Frank 8)
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The part about public auction, we did not go through this when we bought a bank reposession. We bought direct from the bank. Could this be that it had previously been in an auction and no-one bid?
Is it true that the owners can pay at the day of the court case and stop the action?
I doubt that if the people who owe more than the house is worth will be pursued. It was stated in the USA that it is not worth the cost of doing this! Just that they will be unable to get credit again.
The last para is interesting for anyone about to buy a foreclosure. Better to ensure that the family has left and the property is vacant or you may find yourself owning a home you cannot live in!
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“Although the house has been sold the borrower is still owing a lot of money so the lender will keep pursuing. If you have a guarantor the lender will start the proceedings against him in order to obtain the rest of the debt.”
The question is: what happens if the borrower is a British or a Romanian or a German who wanted to flip and got burned? And who does not own any property and does not have much money in the bank?
Like it happens in USA where strawberry pickers or janitors “bought” 3-4 properties which they simply returned to the banks and nobody can do anythin about it…
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“I doubt that if the people who owe more than the house is worth will be pursued. It was stated in the USA that it is not worth the cost of doing this! Just that they will be unable to get credit again.”
They will not be able to use credit for 5 years, then everything is erased…
What people do in USA is to first rent another apartment/house and then send the keys to the bank. This way the bad credit does not affect them when the rental agencies do the credit checks..
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It is worth noting that some people in the Uk who had their homes repossesed 15 years ago & thought that was the end of the matter were taken to court earlier this year & ordered to pay the outstanding arrears from 15 years ago.
If you owe the money the banks will wait until you have enough to make it worth chasing you.
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@ralita wrote:
“Like it happens in USA where strawberry pickers or janitors “bought” 3-4 properties which they simply returned to the banks and nobody can do anythin about it…
In Spain is not like this: you can return the keys to the bank if you want, but you are liable for your debt with your personal wealth and income. In Spain, banks always win. Who said Spain was left-wing?
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rob6578 wrote:If you owe the money the banks will wait until you have enough to make it worth chasing you.
And so they should be allowed to do so, along with any others who you may owe to.
The bankruptcy law in UK is a farce, bust today, new business tomorrow if a Ltd. Co., or for private individual, bust today, wait a copule of years and run up more debts.
Self-respect, many don’t know what it means, there again, many could not read the words to understand. -
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farstar
– before repossession, I think the bank will try to use the avalists (if they exist; very often they do).
The bank go against the avalist or guarantor after sold the property in public auction when the property is not enough to reach the total debt. We have first of all this special proceeding of repossession and after another proceedings.
Katy
‘The part about public auction, we did not go through this when we bought a bank reposession. We bought direct from the bank. Could this be that it had previously been in an auction and no-one bid?
Exactly, that is the situation’
‘Is it true that the owners can pay at the day of the court case and stop the action?’
yes it is true
Ralita
‘The question is: what happens if the borrower is a British or a Romanian or a German who wanted to flip and got burned? And who does not own any property and does not have much money in the bank?’
Ralita you´re coming with the most interesting point that I want to talk about. I would like any advice from a UK practitioner in this issue. What happens if a Brit after loose his house is still owing 40 50 60k. He is not working here and has not any assets in Spain. He is working in Uk and has a house but also has a debt in Spain.
The bank’s lawyer has an spanish freezing order and he send it to an english court for execution under the Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters
(O. J. L012 – 16.01.2001, p.1). – “Brussels I”.So we need any Uk lawyer in order to know how this court will deal with this levy of execution which is now in Uk
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Im not a UK lawyer but did handle cases for a private company – mortgage brokerage – many eyars ago
I have always thought this would happen as I cannot see banks just letting people get away with it
Once an order is made here, it is translated and sent to the county court close to the ex owners home. This will be entered as judgement but it may be in proviso to the laws inasmuch that the judgement has to be legal under the law of the country in which it first was made. ie applies to spanish law. I know this is the case with divorce where the court order can be ratified in the UK providing the order complies with the countries laws in which is was granted.
Cant see it being any different with property and it is only an order for money anyway!
Whats the situation for repossession under 2 instances
1. If the owner declares bankcrupcy – is the debt them written off anyway and
2. If the house has a mortgage BUT there is no LFO? The proeprty cannot be sold anyway and should not have had a mortgage granted on it. Can the order be contested by the owner??
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@Inez wrote:
If the house has a mortgage BUT there is no LFO? The proeprty cannot be sold anyway and should not have had a mortgage granted on it. Can the order be contested by the owner??
IMO, this question of if the house does not have a LFO is a red herring. At the end of the day, the mortgage is a loan to the borrower, secured against the property, for the purpose of buying that property. It is a debt to the bank, and whilst the bank may have not shown due diligence to it’s shareholders and savers in making the loan, I would still think it must be repaid by the person who borrowed.
If we looked at a scenario of a re-mortgage where an owner went to his bank and sought a mortgage on an equity release basis supposedly to buy a holiday home in Morocco. The borrower receives his advance, gives the charge against the property and goes to Morocco but instead buys a big bag of white powder, which he is caught with at Malaga Airport on the way back. From his cell in Alhaurin, when the bank is trying to repossess his property, he then claims that the mortgage is not valid because it was used to fund a purchase of goods that were illegal.
No, I think the debt will stick and that the fact the property cannot be sold without a LFO will actually make the situation worse for the borrower, as the interest continues to be added to the judgement until it is satisfied.
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Hi Rob
Well can see yer point but as you are seeing Banks are writing off huge depts.
I dont know what is in the mortgage agreement but one thing is for sure that it was granted using the property as a secure tangible asset.
Now if there was no personal guaranteed to cover any shortfall or in the event of say the habitation licence it would be interesting to hear the result of a legal case in this instance
Very clearly an issue that none of us can guess on only to give our opinions at the moment and refer to instances we are aware of.
Think this whole matter of reposse where buyers are in different countries is a very impotant issue.
I have had 4 views from solicitors in Spain 3 said the dept would end in Spain with one saying it could be chased as long as its in Europe but felt it would need to be fair amount of shortfall.
Of course the people that would decide on any action would be the Bank and of course anyone would be advised to negotiate and not just hand the keys and walk away. (Thats asking for trouble)Just Frank 8)
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“I have had 4 views from solicitors in Spain 3 said the dept would end in Spain with one saying it could be chased as long as its in Europe but felt it would need to be fair amount of shortfall.”
I have the same view as the 3 solicitors you mentioned.
Banks will not have time and will not spend the resources chasing many thousand foreigners who will give the keys back. They will never be able to chase Romanians, Russians or Chinese who do that. They might be able to chase Brits or Germans, but
I suppose most of these will simply declare bankruptcy before giving back any money oned in Spain.The only thing they can do is to learn a lesson…
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Frank
I think the banks are “writing down” the value of their loan books rather than writing off at the moment. They are making provision for bad debts. Here in Spain, a business cannot carry one years losses through to the next for tax purposes (unlike the UK) so the Banks will write off as much as their profit as possible rather than get hit by a huge loss in a couple of years time with little tax relief to offset some of those losses.
There is no doubt that the debt can be chased across EC jurisdictions with little effort and relatively little cost, so I don’t think we will see the banks letting things go if they think there is a route to recover even in 10 years time.
I would think that as so many now already have London branches or are even part of a UK group, they already have tracing and recovery departments there. I guess that “worthwhile” debts (say 40,000 EUR plus) they will chase themselves and smaller ones they will give to UK debt collectors on a no win – no fee basis. Even if they have costs of recovery of 25% of the debt, they are better off collecting what they can in that way. And beside, the interest will continue to accrue even after judgement.
I think it will be wait and see, but I really do think that those holding out a hope that with no LFO on the property the mortgage will be declared void will find themselves in a losing situation in the courts in the UK and Spain.
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I think the LFO one is a mute point. Im watching with interest someone who cannot pay the mortgage nad hasnt done so for nearly a year! The bank UCI have just requested payment of the loan in full, but b4 that he was called constantly by them requesting he made a payment or tried to sell. He did try to sell and had a buyer BUT no LFO!
That issue isnt his fault and if the proeprty only receives say a third of its value due to the LFO situation, then like the off planners without a property, why should he suffer? If he is sued (lives in Spain currently) then perhaps a counter suit (is that spelled correctly?) against the banka nd lawyers who shold have lent correctly or not lent at all – and the notary!
Re people in other countries, well there is a company who after being successful in Germany have set up here and the UK in order to handle the debts – they initially try to get payment, but if not will handle the possession sale and recovery of the debt for the bank – for a fee of course. So you aint safe!
Some banks are trying to sell their loans off as well.
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Inez
‘it may be in proviso to the laws inasmuch that the judgment has to be legal under the law of the country in which it first was made. ie applies to Spanish law. I know this is the case with divorce where the court order can be ratified in the UK providing the order complies with the countries laws in which is was granted.’Section 36 of Council Regulation (EC) No 44/2001 ‘Under no circumstances may a foreign judgment be reviewed as to its substance’
Section 33 1. A judgment given in a Member State shall be recognised in the other Member States without any special procedure being required.Section 34 A judgment shall not be recognised:
1. If such recognition is manifestly contrary to public policy in the Member State in which recognition is sought;
2. Where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so;
3. if it is irreconcilable with a judgment given in a dispute between the same parties in the Member State in which recognition is sought;2. If the house has a mortgage BUT there is no LFO? The proeprty cannot be sold anyway and should not have had a mortgage granted on it. Can the order be contested by the owner??
The property can be sold. Why do you think it is impossible ?. Everybody knows that everyday in Spain people are selling houses without LFO and banks are granting mortgages without LFO. Lack of LFO is in the ground of planning permission and nothing to do in civil law, conveyacing etc
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judgements obtained in one EU country can be enforced in another EU country.
Inez: Point 2. If the house has a mortgage BUT there is no LFO? The proeprty cannot be sold anyway and should not have had a mortgage granted on it. Can the order be contested by the owner??
This will be interesting to see how a British judge will/can enforce this. As its against basis of a legal system. Unless it is in Spain.
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Section 34 point 1 was what I was referring to – I knew I had seen it somewhere
LFOs – Im sure someone will contest it. Here in Marbella Notaries refuse to sign without the LFO and most banks request a copy of it before giving the finance.
I am not allowed uinder decree 218 to offer a proeprty without having the paperwork here in the office.
So, properties cannot NOW be sold without this LFO so how can someone who wants to sell his proeprty do so??
Point 2) If someone declares bancruptcy in Spain can the banks then still come after them or is it the same as in the UK where a line is drawn under it and you move on??
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Its the licence of first occupation granted after all the works from the developer has been finished and officially approved.
Without this piece of golddust you are not advised to complete a sale under any circumstances, but in the good old days it wasnt an issue.
A good lawyer will not advise you to complete and all notaries should totally out and out refuse as well.
Only under very exceptional cicumstances is it ok for example when the fin de obras (end of building) has been signed off by the town hall, meaning this license is on its way will you be advised to comlpete
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