Recently and as a result of the sum of several factors such as the unstoppable fall of the sales of properties and an increase in mortgage defaults, Spanish banks have accumulated more than 150,000 million euros in property assets. Assets which, incidentally, the banks do not want but the truth is that since October 2008, the amount of acquired houses by banks has not decreased, quite the opposite, it has continued to grow.
This is partly due to the so-called “dación en pago”, common and usual practice in Spain, which consists in giving the house or flat to the bank and canceling the mortgage debt or part of it, after the property has been valued. In some cases, the Dación en pago involves payment of the total mortgage debt (dati pro solute) and in others cases payment of part of the mortgage (dati pro solvendo).
However, the truth is that as result of excessive accumulation of assets by banks, the chances of banks accepting the “dación en pago” these days without an offer for sale for the property by a third party have declined.
Another strategy used by families in Spain to keep ahead and tackle debt is called “REUNIFICACIÓN DE DEUDAS”. It consists of clustering all sort of debts (including personal loans and mortgages) into a single mortgage, the monthly payments being refinanced and maturity dates being extended. This practice reduces the total monthly payments and restores the family’s or individual’s creditworthiness. The downside of this practice is that it would mean either re-mortgaging the property if there already was a mortgage in place or mortgaging the property if this was free of charges. For those without a property it would mean committing to a longer repayment plan with higher interests.
In my opinion the “dación en pago” and the “reunificación de deudas” are appropriate measures to keep afloat financially. In the case of the former, it would mean cancelling the mortgage and being able to start from scratch without debts. In the case of the latter, it would allow buying some time to make things work and hopefully be able to tackle the debt later on in a better position, mentally and financially. These options prove much better than defaulting on debts, as this always implies legal consequences that stay with the debtor for years, whether this is bad creditor reports or the fear of being sued in Court.
Picture from www.freefoto.com
This is my last article on the topic that I started some weeks ago. I could write about wills for weeks as this is a subject that I enjoy quite a lot but I am aware that this would make my blog quite boring and repetitive. I have therefore decided to conclude with an article on one of my favourite topics within Wills and Succession and then move to new topics.
The topic I will cover today is jurisdiction. Lets imagine a person called Joe Bloggs. He is British, English national and domiciled, lives in England and has assets in England and Spain. Joe is a cautious man, no surprise his nickname is Cautious Joe, and he has made 2 wills. One for Spain and the other one for England. On his death, his beneficiaries appoint an English law firm to deal with the estate. As there are some Spanish assets, the English law firm has to instruct a Spanish lawyer to help with the Spanish side. The first question the English lawyers ask the Spanish is the following: is the Spanish estate regulated by Spanish law or English law? The Spanish lawyer will probably look at the Spanish Civil Code and confirm that English law applies to the deceased’s estate as this is what is stated in article 9.8 of the Spanish Civil Code.
The above would be the usual scenario but things are not as simple as they look because English law states that immovable assets (properties) are regulated by the law of the place where these are located. This means that there seems to be a conflict between English law, which states that Spanish law should apply, and Spanish law, which states that English law should apply. In general terms the conflict is resolved and English law is applied but this is not always the case, specially when the deceased died living in Spain with all his assets in that country.
There are two good ways to avoid the potential application of Spanish law to the Spanish estate of an English person (and therefore avoid the strict forceship rules of Spanish Inheritance Law). The first one is to include a clause on the Spanish will to confirm that the testator wants English law to apply to his Spanish estate. The second one is to keep some assets in England to ensure that the jurisdiction is not returned back to Spain. Sometimes is sufficient with keeping a parking space or a bank account with a relevant amount of money but when in doubt a property would prove the best option.
If the above is not done, then the testator may have his will challenged by one of the forced heirs under Spanish law (spouses, children and, in certain occcasions, parents) if he/she has been ignored in the will.
This is a fascinating topic that is evolving constantly. However, the above recommendations will help to avoid future problems for the loved ones.
Photographs by www.freefoto.com