Struggling Britons seek ways to offload Spanish holiday homes

foreign-property-pic 

Higher mortgage interest rates in the Eurozone, a fall in the value of the pound and the effects of the recession mean that many Britons who have bought holiday homes in Spain are now struggling to meet their monthly repayments.

Our firm has seen a rise in the number of people seeking help to renegotiate their Spanish mortgages or advice on alternative options.

The increase in mortgage interest rates from 2.5 to 5 per cent in Spain and the weaker pound have both increased the cost of mortgage repayments. However, buyers who allow their homes to be repossessed could face consequences in the future.

Under Spanish law a borrower is liable with his own personal assets for any mortgage signed in Spain. Where a home is repossessed by the bank and sold and the value is not enough to cover the outstanding mortgage, interest and costs, then the bank will be entitled to claim against the borrower for the shortfall. In the case of UK residents this could mean the lender issuing proceedings in the UK. 

The borrower could also be put on a register of bad debtors and be blacklisted in Spain for six years. This may not worry UK residents who decide to leave Spain. However Spanish lenders are fully aware of the importance of credit ratings in the UK and are now exploring ways to pass on information to UK databases.

Some are looking into signing reciprocity agreements under which they can share information with companies in different countries. Ultimately UK residents who default in Spain may find their credit history affected back in the UK. A decision by the European Court of Justice on 23 November 2006, which clarified the circumstances in which financial institutions may exchange this type of information, has brought this scenario a step closer to reality.

Options for homeowners in financial difficulties include renting out the property, extending the mortgage term or remortgaging, or ‘dación en pago’ in which the property is transferred to the bank in lieu of the outstanding mortgage.

Whatever the situation, handing in the keys and simply walking away is one of the worst things you can do. It’s worth exploring the options as a rash decision could come back to haunt you at a later date.

Court threat for Brits who back out of ‘home in the sun’ deals

Real-estate_devBritons who have had second thoughts about buying holiday homes in Spain are being pursued in the Spanish courts by the developers – despite a clause in their contract allowing them to back out of the deal.

Our firm is acting for a number of British buyers who have been threatened with legal action. Hard-pressed Spanish developers who have been left with a stock of unsold properties on their hands are now trying to take court action to override the terms of their contracts and force buyers to complete the sale.

During the property boom, Spanish developers were so confident of selling their homes that they included a clause in the contract allowing purchasers to pull out provided they forfeited their deposit. In fact, having a sale fall through was good news for developers – the property would usually be sold to the next person in the queue and they received an extra lump sum.

Given the current economic climate, the weak pound and the oversupply of properties in certain areas of Spain, some British buyers who had invested in a property off-plan have had second thoughts and resigned themselves to losing their deposit. However, now the property market has collapsed, developers have changed their strategy. Some are trying to use a clause in Spanish law to allow them to override the terms of their contracts and force purchasers to complete.

The developers claim that section 1124 of the Spanish Civil Code gives them the right to choose between enforcing the obligations under a contract or allowing it to be terminated – in this case, letting buyers back out and pay the penalty. It is difficult to predict the tone the Spanish courts will take until the first judgments start to come through.

The individual circumstances of each case need to be considered – such as whether there has been any breach of contract from the developer, for example late completion, and whether the purchaser is a private individual or an investor – someone buying more than three properties.

The developers’ approach contradicts the contracts they signed only a few years ago and is against the principles of contractual obligations. Some are even threatening purchasers with legal action in the UK, but omitting to say that they cannot do this until a final judgment has been obtained in Spain. At the current pace of Spanish justice and allowing for an appeal, this could take two to four years, by which time the developer could have gone into administration. It would also be very costly for them to pursue cases outside of Spain.

I do not want to imply that all threats from developers should be considered a bluff and that completion should be rejected at all cost. Each case is different. In some cases there will be insufficient legal grounds to fight the case and it may be better to complete and in others, to dispute any claims. Anyone in this situation should consult a qualified Spanish lawyer who can advise on the best course of action.