Few people, when signing a mortgage, analyse the minutiae of the contract. I refer not only to the consumer, but also to those bank managers who don’t know how to explain the financial formulae that round up the mortgage deed. This lack of knowledge becomes apparent when it comes to the financial responsibilities inherent in the mortgage and the consequences that arise upon failure to meet the payments. They generally gloss over these by saying “If you don’t pay up we will repossess the house”. This statement is true, but there is much more to it. Often, and especially amongst foreigners, this leads to the erroneous belief that should the bank repossess the house, the debt is cleared. However, that is not the case.
Once three month’s mortgage payments have not been met, the lender has to inform the Banco de España. If the bank and the client do not reach an agreement, once the mortgage has not been paid for six months, the official legal wheels are set in motion. This process can take between 8 and 18 months. The EU is trying to speed up this process, saying that it should not take longer than 12 months from the judicial order to the sale of the property.
Any outstanding debts, remaining after the sale of the property are obliged to be paid and the bank can and will requisition current and future assets throughout the Spanish courts to clear these debts, even once the debtor has returned to his own country. If the debtor is European, the Spanish court sentence is recognised and therefore no further proceedings are necessary. If the debtor is not from the EU, the bank will take recourse and it is determined whether a foreign sentence can be recognised and carried out in a different country.
Imagine that you have signed for a 100,000€ mortgage. The bank will calculate the interest payments of possibly 15,000€ and other costs including legal expenses of 15,000€, making a total repayments of 130,000€. This could make the repayments impossible and the bank may repossess your property. They may decide to sell the property at auction, which could mean it selling for a much lower price than it was originally bought for. The bank will chase this debt of possibly 100,000€ (calculated on the bank selling the property for only 30,000€) in Spain, or abroad. It is therefore better to reach some kind of agreement with your bank if you are finding it difficult to pay your mortgage. The final recourse could be to declare a suspension of payments, according to the 22/2003 Law.
These proceedings will be described in subsequent articles.
Article sponsored by Silvente Asesores