Following the financial crisis in 2007 and against a backdrop of mounting property foreclosures in Spain the courts saw an increase in disputes where the owners of property were seeking to hand over their property to the bank to clear the mortgage they had taken out on the property.
This is known in Spanish as ‘Dación en pago’, and involves ‘selling’ the property to the bank in return for extinguishing any existing mortgage.
While ‘dación en pago’ can provide a solution to the property owner, in an era of continuing falls in the value of property in Spain, Spanish banks increasingly objected.
Banks would much prefer to use other methods of reducing the debt which are far more beneficial to them. One possibility open to them is to place the property in a public auction and, upon failure to attract a purchaser (as if often the case), take advantage of typical mortgage contract terms that allow the bank to value such a property at 50% of it’s nominal value while continuing to pursue the (ex-)owner for the remaining 50%.