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Solutions to mortgage repayment problems in Spain


For a not inconsiderable number of people the Spanish dream has turned into a nightmare as a result of the property implosion. Setting aside those semi-professional property investors who borrowed in the extreme in order to buy multiple properties, those who simply dreamed of a retirement or permanent move to the sun and who have seen their income disappear either due to fluctuating exchange rates impacting on pension annuities or being made redundant have been put under extreme pressure from banks in Spain when they find themselves unable to meet the mortgage repayments.In 2010 alone more than 118,000 properties were repossessed by banks in Spain.

Of course in Spain, unlike in the UK or the US, any individual who owes a bank money via a mortgage agreement is liable to repay that mortgage debt using all current and future income and assets. This effectively means that there is little opportunity for a person to escape liability for a mortgage debt in Spain.

Dación en Pago

As a desperate search for solutions to huge problem continue recently some Spanish legal cases as well as some vague political electioneering have raised the possibility of employing a little known legal concept in Spain known as ‘dación en pago’ which involves the bank accepting the property as a full and final settlement of the mortgage debt. While the banks have reacted negatively to the developments and are appealing all of the court judgements, it appears that dación en pago may be an acceptable solution in certain cases.

While there will not be certainty, at least before the relevant cases have been fully appealed, the banks are maintaining their stance that unless they agree, in the specific circumstances of an individual case, to accept the property in lieu of repayment of the mortgage then the mortgage debtor remains fully liable for the amounts outstanding. It seems however that where non-Spanish individuals are concerned the banks are more likely to accept the property as a valid payment of the mortgage.This would no doubt be a huge relief to many people caught in this predicament.

It appears that while the banks are more likely to accept the property in the case of non-Spanish mortgage debtors, it is by no means cut and dried. There are a number of criteria that the bank will seek before going down this route: both partners should be in long-term unemployment and unable to pay their debts. At the end of the day it is up to the bank to decide and this can depend on factors such as the banks level of bad-debt and it’s need to ‘make’ its year end numbers. It would appear also that some banks are more likely to consider this solution such as Caja Madrid, La Caixa and Santander, to name three. It is still the case  that the bank will consider ‘dación en pago’ as the absolutely last resort and will seek other solutions to avoid having to accept the property on to it’s books. That said, if you are not Spanish and planning to return to your country of origin this may provide the solution you are looking for.

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