Bank chasing you over your mortgage on your property in Spain

Few clients escape legal action by the bank when it comes to mortgage default. Not even property owners who hand over their keys to the bank and return to their home countries, victims of the financial situation in Spain and with no family or social resources here to fall back on. But the banks have all the time in the world and the law does not prevent them from following up a legal judgement in another country.

In no more than three years the number of mortgage foreclosures in Spain (the final legal step to repossess a property in the case of default) has almost multiplied by four, reaching 93,622 cases in 2010, according to statistics from the CGPJ (General Council for the Judiciary). “The majority involve foreign citizens” maintain sources, both from the association for those affected by property seizure and auction, AFES, and from certain financial institutions that have dealt significantly with foreign property buyers during the boom years.

“When the time comes for the foreclosure on the mortgage to be finalised, they go back to their home countries”, explain AFES sources who warn families in this situation that this is “not a solution in the long term”.

This is because when a court has authorised the foreclosure, the bank or savings bank “has the action in personam which is recognised regardless of the country you are in”, state judicial sources. This means that legally speaking the banks can chase their former clients wherever they are in the world.

The legal concept of “recognition and enforcement of foreign court orders” allows a sentence delivered in Spain to be recognised in different countries such as Ecuador or Romania, where many of Spain’s foreign residents come from. It is necessary to wait until the legal system in these countries recognises the Spanish sentence “depending on Spain’s agreement with each country”, continue the judicial sources.

In the case of citizens from EU countries, this process is easier and faster, say the sources, thanks to the EU regulation 44/2001 which states that judgements given in EU countries are to be recognised without special proceedings.

Sources from a savings bank admit that it is costly enough to chase up a debt in Spain, and so “the idea can end up being abandoned when there are thousands of kilometres involved”. However AFES warns that “banks have all the time in the world to enforce a sentence”.

The main problem Spanish banks face is that their debtors could live in countries, such as the United States, that recognise the concept of ‘deed in lieu of foreclosure’, where the debt is considered cleared when the property is handed over. In these cases the Spanish law ought to be applied, although on US territory the American legal system does not have to recognise a judgement that goes against US law in this type of case.

Spain’s Civil Code establishes that personal responsibility for a loan “affects all their assets, both present and future”, explains the lawyer Francisco López Soria, an expert in consumer affairs.

The best option is to try to avoid the foreclosure being finalised with a court order. Several months can pass from the moment a family stops meeting their monthly repayments until a final court order is passed. This period gives mortgage holders a margin to negotiate a solution with their bank.

The association AFES attempts to act as a mediator between customer and bank. “They can wipe out part of the debt with the sale of the property, introduce grace periods, or other solutions”, says the organisation. In that way “the bank gets rid of a property before having to go through costly foreclosure proceedings”, explain AFES sources.

When the property is sold, it is likely that the price will be lower than the mortgage holder paid when they bought the house. Some banks admit that they allow clients to refinance the difference in order to avoid the case going to court.

Meanwhile citizens with mortgage difficulties are hoping for a modification to Spanish law to allow the concept of ‘deed in lieu of foreclosure’ to be applied. While some “flexibility has been announced, the majority of experts believe it is improbable that Spain will adopt the same system as the United States. “There could be slight modifications”, says López Soria, but a change to the current system is unlikely.

Source: Sur in English

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