Spanish banks and a code of practice

By Royal Decree the Spanish Government has implemented a voluntary ‘Code of Practice’ for banks to help solve the problems created by evictions. It will create a series of mechanisms to be applied by all banks (who have signed up) to prevent low income families losing their homes by restructuring their debt, maybe reduce it or even hand over the Spanish property in lieu of payment.

The debt restructuring would include options like making interest only payments for up to four years, extending the orginal terms of the loan to 40 years (age allowing) and rearranging payments for one year at an interest rate of 0.25% above the Euribor rate.

If , in the worst case, despite this restructuring, property owners are still unable to meet the debt payments, the bank must offer a rebate of part of the mortgage.

Although this option would have to be studied on a casa by case scenario, I would hope that the banks would sensibly take in account current prices and adjust the loan to reflect current market prices and values.

Lieu of payment

Even with these benefits I would expect that the unemployed property owners would still have difficulties. If after having you debt restructured you are still unable to meet payments, you will be able to hand over your property and clear the debt in full. Previously that bank only took a property at 60 percent of its value and pursued the ex owner for the remaining debt, so a definte improvement there.
On handing over the property, the former property owner has the option of remaining in the property and paying a month rent that equted to 3 percent of the outstanding debt. Thus not depriving them of a roof over their heards.

Now which struggling property owners qualify? If you are facing foreclosure and all those that live in the property are unemployed and mortgage payments exceed 60% of any income. Second the value of the home must be below a certain amount. Under 200.000€ if in a city of over 1 million inhabitants, 180.000€ in cities with population over 500.000, 150.000€ in cities with populations between 100,000 and 500,000 inhabitants and 120.000€ in towns with a population under 100.000€.
Andrew Bellés

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