Dacion en pago for non-residents. Do we have a deal?

Do we have a deal?If you have read the Spanish press this week you will probably have seen plenty of articles on the Government’s new proposal to solve the current problems with those who cannot pay the mortgage.  Luis de Guindos, Minister of Economy, will announce this week some new measures to enable consumers to surrender their properties back to the bank in exchange of clearing the debt (a procedure known as “dacion en pago”).  

This would be applicable to low income families where all the family members are unemployed. The “dacion” will enable the debtors to return the property to the bank and have the mortgage debt cleared entirely. This can be positive as many property owners who are behind in their mortgages, are in negative equity and therefore owe more than what their asset is worth. Under the current rules, the borrower responds with all his personal assets and therefore the repossession of the asset does not end the debtor’s liability if the asset is in negative equity. The debtor will still owe money to the bank until he has repaid the full amount. This is extremely burdening for low income families and the new proposal will try to find a solution to the current problems enabling some families to return the “keys” to the bank and start from scratch without debts. The proposal will also contemplate the possibility of renting the property from the bank and paying the bank a “socially acceptable” rent until the debtors can get back into the employment ladder and refloat their finances.

The above will be, obvioulsy, subject to the bank’s approval but Miguel Martin of the Spanish Bank Association has already stated that the banks will be interested in co-operating and finding useful solutions for those families.

The above looks promising but unfortunately will only be applicable to those properties that form the main residence of the family. This means that non-residents owning property in Spain, such as the usual readers of this blog, will not be able to benefit from the new proposal.

So, where does the above leave non-residents who are currently struggling to pay their Spanish property? Well, the proposal has not been launched with their situation in mind. Those non-residents will have to contact their banks and suggest a dacion but the bank will not be obliged to accept these.  In fact, during my daily practice in law I have seen a decrease in the amount of “daciones en pago” accepted by Spanish banks. Some of them are even too busy to be concerned about non-residents debtors as they have more important defaults from Spain to deal with. 

I read a post the other day where the blogger indicated that a bank will not consider the “dacion” if the mortgage is in arrears. With all the due respect to the said blogger,  I have found in my practive that this is not always the case. In fact, I have seen banks telling me that they cannot consider a dacion until the mortgage is in arrears!!! Very confusing. 

In my experience the key thing is to try to keep with the payments and keep the property. Otherwise, all the money and dreams invested in the property will dissapear. However, sometimes this is not possible and therefore a person may have to consider a measure as dramatic as the dacion. In those circumstances, it is better to come clean with the bank and show all the cards. The financial situation should be explained and documentary evidence provided. Obviously, the assistance of a lawyer can also help as sometimes relevant information is lost in translation and in the peculiarities of the Spanish legal system.

So, there is some hope for Spanish based families who are struggling to pay their mortgages and are afraid of still owing a large amount of money to the bank after the house is repossesed. For those who do not live in Spain, the situation is not as good, if not worse, but Spanish banks will consider the possibility of a dacion and in some occasions approve it. 

 Photo from www.dreamstime.com

Lets talk about gifts

 

 

 

In this space I have talked about wills and inheritances very often but never, as far as I can recall, about gifts. Is it generally a good idea to gift assets in Spain? The answer is also generally no. Why? For one simple reason: taxes.

 

A gift will always be subject to gift tax which is also higher than the inheritance tax. This means that if you gift your property in Spain to your children, they will pay more taxes that what they would have paid should they have inherited this property after your death. This clearly puts off many property owners from gifting their properties in life rather than on a will, and therefore on death. However, this option can still be considered if the recipient of the gift requires the property now rather than later. For instance, if you have a property in Spain that is empty and your daughter has moved to Spain and wants to settle there, gifting the property may prove useful for her. Ok, she will have to pay gift tax but on the other hand she will not have to get a mortgage and buy the property paying high interests to the lender.

To summarise, a gift is not always a “no-no”. In some certain cases can prove useful and the high tax payment can be offset by certain advantages of transferring the property now rather than later but careful consideration should be given before embarking in this transaction. Otherwise, it could prove unecesarily costly.

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Ok, marriage is over. Now what do we do with the property?

 

                                                  

Many Brits own property in Spain. In most of the cases, the property is owned by a married couple. So, what happens when the couple divorce or, more specifically, who gets the Spanish property?

The most normal thing is for the Judge who deals with the divorce to make a provision in the decree for the distribution of the assets. This includes the Spanish property and in most occassions the property is assigned to one of the spouses solely (usually in compensation for another asset being assigned to the other spouse). However, this is not necessarily the end of the procedure and further paperwork needs to be sorted in Spain.

The truth is that it is still necessary to sign some extra documents, otherwise the property will not be effectively transferred to the new owner. So, what are the steps to take to ensure that the property is effectively transferred?

The first and perhaps more important step is to ensure that the Judgment, specially if it is a UK Judgment, explains who gets the Spanish property. Furthermore, the Judgment needs to be precise and describe the property address with the same description that is contained in the title deeds. If not, this could lead to misunderstandings or unexpected problems with the registration.

The second step is to speak with the local land registry in Spain and see if it will agree to transfer the property  without the need of a further transfer deed. Some registrars accept to do this as long as the UK judgment is clear about the destiny of the property and the description contained in the judgment corresponds with the property’s address. The Judgment will also have to be legalised with the apostille of the Hague Convention and translated into Spanish by an official translator.

Now, some registrars will not consider the above sufficient and will demand that the spouses signs what is called a termination of co-ownership. If this is the case, the spouses will have to fly to Spain and sign the said deed. This deed will be subject to stamp duty tax 1% and a lawyer will probably be required to organise the transfer. For those who do not want to fly to Spain (or sit with the “ex” in the same room when signing the deeds!), a power of attorney can be the solution. The power of attorney can be signed in the UK and can be given to the “ex” if this can be trusted or, preferably, to a lawyer. The attorney will then sign the termination deed and deal with the new registration.

It is very important to complete the procedure. I have seen many situations where one of the spouses was under the impression that the property had been transferred to the other spouse and then found out that this was not the case. This could be a big problem when there is a mortgage on the property or when the spouse who is using the property has not paid community charges and taxes. In the end, it could lead to liabilities for the spouse who surrendered the property.

For all the above reasons, any person who is divorcing and has an asset in Spain would better check the Spanish property situation with a Spanish lawyer. The UK lawyer will be able to advise on the UK side of the divorce but will not be able to deal with the transfer of the Spanish property and therefore this asset can be left unattended. An even better option is to engage a law firm that counts with both UK and Spanish solicitors. There are a few in the UK, although mainly in the big cities. DWF being one of them.

More interesting topics next week!

 Photograph from www.dreamstime.com