I looked into “dacion en pago” for getting rid of my second Spanish property in 2008. The bank said no. So I just sold it cheaply instead and paid the outstanding mortgage off myself, rather than pursuing the matter. I appreciate not everyone is in a position to do that.
If I remember correctly for “dacion en pago” to be suitable, you must not have any outstanding mortgage payments, secondly the property value must be greater than the outstanding mortgage. Under these conditions the bank have a legal responsibility to accept “dacion en pago”. You forfeit any capital in the property above the outstanding mortgage. If these conditions are not met then the Bank has no legal responsibility to accept “dacion en pago”.
Well given the current situation I would expect that not many people who bought in or around the peak (2004-2008) will be in a position to meet the criteria of “dacion en pago”. Realistically prices have fallen 50% from the peak and I would imagine that individuals in difficulty that need to sell financed their property with a LTV greater than 50%.
“…the bank have now taken it back off her for 145.000 euros and “forgiven” her the rest. So she didn’t even have enough equity in her property”
Phrasing it a little bit more precisely do you mean:- Your sister had an outstanding mortgage of 145,000 Euros and the bank valuation was less than this, nevertheless they have cancelled the mortgage for return of the keys.
If so then she is lucky as that would mean everyone could simply hand back the keys under “dacion en pago” and walk away, which is not allowed under Spanish Law.
According to brianc_li
Price decline is around 27.8% from peak, so 55k off 200k is 27.5%, so at a guess I would say that maybe (with the bank being generous) she has just scrapped into the allowable criteria for “dacion en pago”, but not without a lot of hassle no doubt and a falling market whilst the negotiations continued.
I expect the window for dacion en pago, for most people has or is about to close.
Hi Jp1, I just phoned her to get the exact picture:
She purchased in the boom and the tasacion back then was for 280.000 euros. Her morgatge was for 240.000 euros
They now did a tasacion for 140.000 euros.
As she is a single mum with no assets and a low income (living on the coast so only summer income) they have agreed to finalise the dacion en pago at 140.000euros (even though her mortgage is in the 220.000 euros region, not sure of the exact amount, forgot to ask, but higher than the 140.000 euros) It would be highly unlikly that would ever be able to get the funds off her so I assume this is why they have accepted it under these terms.
She said that it is better for them to do the dacion at a lower amount for the “books” (don’t know why this is though, maybe someone can highlight us on this)
So basically they have now signed it over even though the tasacion was for only 140.000 euros and she still had a mortgage for around 220.000 euros.
As I said previously, they saide they “perdonan” the rest (entre comillas). These words exactly from the bank.
She said apparently it was over “tasado” so they had to accept it. Sounds bizarre I know, but it is completely what has happened. Interesting to say the least!
Jp1, you said that they have to accept it legally if it ticks the criterias, but I am not so sure. As far as I know, they do not have to accept it under any terms. (even though my sister in law had it accepted, but I think it is studied on a one on one basis)
This is exactly what happened and I am not sure as to why she has had it accepted but she has!