The Mortgage and Property Shop - Info Centre - Spanish Mortgage Repossession Information
The present unfortunate financial crisis which as usual hits the property market brings with it the stress and heartache associated with financial loss and a general feeling of helplessness.
We feel it is important that all concerned should be fully appraised of the full extent of the liabilities associated should you default on a financed Spanish property.
The history of repossessions by Spanish banks and financial institutions is somewhat sketchy as traditionally Spanish banks (unlike British banks) have been adverse to this final solution; due to sheer volume this is now all about to change.
The standard practice now is once a client of the bank finds themselves 3 Months in arrears (one major bank is now proceeding after 1 Month); this debt is then handed to the banks legal department. At this point the outstanding debt increases immediately by approximately €30,000, and the added interest is levied at a minimum of 18%.
This is just the start of a very expensive road should the client allow this process to go through the Spanish court system. Written in the Mortgage deeds (escritura) signed in front of the official Notary it states that should it prove necessary to repossess, your total liability would be 50-60% in addition to the initial loan, (a €200,000 mortgage will have a debt of approximately €300,000.
Pre 2004 mortgage escritura's state that a bank cannot sell the clients property; at public auction for less than 70% of the above inflated figure. The bank can, if the property fails to sell, go back to auction after 20 Days and accept an offer of 50% of the inflated price effectively still leaving you a debt of approx' 30% of your original debt as well as losing the property.
Post 2004 mortgage escritura's state that the bank cannot sell the client's property for less than 50% of the current valuation; if you use the above model then the bank could effectively sell the client's property for 20-30% of that valuation figure.
It is important to note that it does not matter how long you have held the mortgage, and how much you have paid off, the inflated figure still stands as the amount you owe, and the benchmark at which the bank can legally sell your property at the auction.
Many people will believe that at this point they can simply hand back the keys, or take advantage of the Spanish system which allows the client to sell the property during the court process (Approx' 1 Year), however this will leave the client open to the huge additional costs.
In the past an ex pat would look at this situation and while it would be distressing and financially disturbing if they were to go back to the UK or anywhere else in Europe that would essentially be the end of a very unfortunate affair, alas this is no longer the case.
The UK based credit check reference company Experian has developed relationships with major European banks including Spain. They will be opening offices all over Europe by the close of 2008; however the banks at this moment have the facility to fax clients details to Experian and this will be put on the client's credit report. This is the long awaited Euro wide standard credit report data base system.
The consequence of this procedure will have far reaching repercussions for the client's future credit facility. If the client wishes to apply for a mobile phone contract, a credit card, a bank account or any loan of mortgage, all the Spanish debt history will be shown and as such all applications will be denied.
There is unfortunately further bad news for those who leave debts in Spain. A major UK law firm has a speciality department who will liaise with Spanish banks to recover debts. If a client has a debt in Spain in excess of € 3,000 the bank can instruct this UK law firm to pursue this in the UK through the legal system. The company can put a second charge on all and any assets in the client's name. If a client has a UK property with no mortgage then they can repossess, if it has a mortgage then the 2nd charge will essentially stop any re mortgage, loans raised against the equity etc.
This procedure will of course stop any sale of the property, or at least at the point of sale the monies owed to the Spanish institution will be taken at source; this will of course include all legal costs, loss of interest payments etc as stated this could be 60-70% in addition to the initial loan amount.