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We’ve had our apartment on Costa Blanca since Jan 05. We’re getting a bit twitchy as the apartment has not retained its value and although we still have some equity, the fees associated with selling would probably mean we would not even break even. We’ve been lucky to have a tenant for a year who would like to continue for a further year, however, his rent does not cover all the costs. We’re not in arrears with the mortgage and do not have any debts in Spain. Our worry is that if we decide to hand the keys in to the Bank, would this affect our financial status in any way in the UK.
We have heard about the dacion del pago which we understand would free us of any responsibilities regarding the apartment.
Can anyone advise?
Thanks.
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Hi Ibarwick. Very briefly dacion de pago is when the bank takes possession of the proeprty and you sign it to them legally at notary, the mortgage debt is cleared and you have no further responsibility. Ideally and in most cases, you need to be up to date with the mortgage, community fees and ibi – you get nothing from the bank for the equity. They work on their valuations so usually its fine, however, the banks are innundated at the moment as you can imagine! Apparently they do have to accept and if they say no, you can force the issue with a notary at hand – best to get full legal advice on that.
If you are sucessful, the banks wont chase you back in the UK as there is no debt attached to the proeprty and therefore you.
If you let things slide and run leaving the property to go through the court process, then the banks exorbitant fees and legal costs are added and the debt is usually far more than the courts can sell it for, leaving a sum outstanding, subject to interest and costs which they may come after you for in your home country, and this action is starting.
Hope that helps you.
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The other issue is if you go down that route (hand the keys and run), then you may have to face the consequences of the final outcome of the sale, and you have no control of this outcome.
A property that you may sell today for 20% under value, will probably be sold for 40% under value or more by the Bank. You have the legal costs of repossesion to contend with as well.
The point I am making is that by effectively handing over of responsibility to the bank you are also handing over control of the final debt figure that you will occur.
A better solution is to sell at a low price, you funding the difference, between the sale price and the outstanding mortagage and walk away from Spain will no future consequences. The alternative is that you may eventually end up being chased for 2 or 3 times this loss in future years. You may not of course be pursued for this debt, but with tighter integration of Europe over the next decade or so chasing debt across borders will become easier. You will only be relieved of this debt if you are made bankrupt or die.
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Edited to add.
I was in a similar solution to you earlier this year (I had 2 properties in Spain). I sold one of them by offerring it to market and a large discount (below my outstanding mortgage) and it sold very quickly. I did not use an agent
My selling costs were 800 Euros (the price of a solicitor I used). (He was really useless but that is another story)
Have a look a http://www.fotocasa.es you can advertise for free. It’s a very good site. If you market your property at the right price it will sell. Don’t follow the market down like everyone else. We are probably 2 years away from the bottom.
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Agree with pretty much everything JP said. I spoke to a woman recently who had been offered dacion en pago by her bank even though she wasn’t really asking for it. They did a valuation which gave her enough equity to walk away but she didn’t want to do it. She didn’t want to face up to having to realise the loss she had made by buying at a bad time (2007). The thing that stood out for me was that when I asked if she could sell for the bank’s valuation she said “no way. it’s been on the market for a year and noone’s looked round yet”. It must have been a pretty generous valuation by the bank then and she was unwise not to go through with it.
On SPI there is this article:
http://www.spanishpropertyinsight.com/spain/mortgages/problems.htm
I published an article on mortgage difficulties in which section 7 deals with dacion en pago –
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At the beginning of this year I desperately tried to negotiate with our bank to let us “dacion en pago” or have an interest only period as my husband’s working hours had been reduced due to the recession. At that time we were not in negative equity but the bank refused to help us and basically said that if we could not pay our mortgage they would repossess and chase us in the UK. I did not realise that I could have pursued this with a Notary. Nearly a year down the line we are well into negative equity – can they still refuse us help if we come unstuck again?
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