The Spanish courts in Navarra and Barcelona have made the headlines recently by retroactively enforcing a ‘dación en pago’ by deciding in the cases before them that the value of 50% placed by the banks on the relevant properties while not enough to repay the debt was sufficient to extinguish the mortgage. The banks are appealing both decisions.
As against those decisions Article 671 of the Rules of Civil Procedure stipulate that the bank may retain the property for 50% of it’s value in the event of a failure to attract a purchaser at a public auction. Article 597 of the same law permits the bank to pursue the mortgagee for the remainder of any debt due should the auctioned property fail to realise sufficient funds to extinguish the debt. While both of these articles are bad news for anyone having difficulties paying their mortgage in Spain, Article 1911 of the Spanish civil code makes things worse by providing that all personal assets – both current and future – may be used to pay-off a debt. For this reason Spanish banks have been successful in seizing a portion of their debtors’ incomes at source.