Ok, a dación en pago has been approved. Now what?

 Businesswoman viewing the contract before signing

 

 

 

 

 

If you own a property  in Spain but you are no longer able to pay its monthly mortgage instalments, one of the possibilities contained in the Spanish legal system is the dación en pago which is the procedure to enable consumers to surrender their properties back to the bank in exchange of clearing the debt.

In previous posts we commented that the amount of these procedures has decreased and it is no longer easy to get a dación en pago accepted. The fact of being a non-resident does not make things easier and some Spanish banks are too busy to be concerned about non-residents debtors as they have more important defaults to deal with in Spain.

If you have contacted your Bank and the Bank has accepted your case, there will be some tax consequences that you have to face. One of them is the payment of 3% Capital Gains Tax retention. This percentage is usually known for being the tax on the gains obtained in the sale of a house when the sellers are non-resident.  Given the circumstances in which this process is approved, you may think that there is no obligation to pay it. However, the truth is quite different. The 3% retention over the value of the property is also applicable in a dación en pago. The only exemption applicable to the dación en pago applies to those who are close to the level of poverty and for whom the house is their main residence. Therefore this kind of transactions for non-residents are still considered taxable regardless if there is a gain or a loss. Having said that, many Banks will bear that cost if the value of the property justifies it.

This 3% should be differentiated from other taxes due as the payment of the plusvalia tax, the payment of the annual property tax (I.B.I or SUMA) and the Community of owners’ fees which also need to be paid by transferor of the property before its transfer. In spite of the above, the real challenge these days is to have the dación en pago agreed. Banks are no longer keen on this agreement and very often the only way to achieve this result is instructing a lawyer able to negotiate the terms and explain the situation to the bank in plain Spanish. And for those lucky (or unlucky, depending on how you view it) enough to have arrived to an agreement with the bank for the surrender of the property, bear in mind that the Bank is entitled to request payment of all the appropriate taxes and costs prior to the transfer. Once again, it will all depend on your negotiation skills!

 

 

 

 

 

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