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.
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