At the beginning of the financial crisis the banks accepted many thousands of properties as adequate payment to erase a mortgage debt. However as time went on and property values continued to fall while bank inventories of property continued to increase, banks were increasingly resistant to accepting title to a property as an acceptable form of extinguishing the mortgage.
While strictly speaking a bank is not obliged to accept a property in lieu of repayment of a mortgage debt it may be in it’s financial interests to do so.
Upon failure to make a specified number of mortgage payments a bank is entitled to seek enforcement of the mortgage. This includes repossession and public auction of the property as well as a maximum 50% reduction of the outstanding mortgage plus recourse to the courts for the remaining 50% or the remainder should the property sell but the sale proceeds fail to cover the mortgage. As stated the bank can embargo a person’s income at source to enforce repayment.
Banks have even shown themselves to be willing to pursue foreign debtors who have decided to return to their country of origin, mistakenly believing that by leaving Spain they were in the clear.
Recent action by Banco Sabadell to pursue an English couple who left a debt of more than €200,000 using a European Enforcement Order (allows a successful suitor to enforce a court decision in another EU country) has demonstrated that this may not be a solution.
However, banks are pragmatic and will evaluate each situation on its merits. So it appears that if the property value is greater than the outstanding mortgage debt the likelihood is that faced with an alternative of expensive court actions both in Spain and in other European countries the bank may accept the property to extinguish the mortgage debt.