In May of 2013 the Spanish government introduced a new law affecting how mortgage debt is to be dealt with by the nation’s banks in an effort to assuage the effects of a growing number of households in negative equity and the seemingly ceaseless rise in home repossessions.
In particular the new law introduces new rules to address those situations where borrowers are unable to meet payments. While the new laws stop short of introducing the famous ‘Dación en Pago’ whereby a bank would accept the property in exchange for extinguishing the remaining mortgage debt, it does provide a temporary respite from repayments for those who meet certain conditions of ‘vulnerability’.
There are two measures of vulnerability that anyone hoping to avail of the two year moratorium must comply with to qualify:
1) The applicant must have a ‘numerous family’ as legally defined, or be a single parent with two children, or have a child under the age of three years and with a disabled or dependent member of the family, a victim of domestic violence or where the debtor is unemployed and has exhausted their benefits.
2) In addition the income of the family unit must be less than €19,000.
The main effects of the new legislation can be summarised as follows:
- Mortgages shall be restricted to a maximum of 80% of the value of the property and the mortgage term can be no more than 30 years in length.
- The banks may not proceed with repossession proceedings unless the mortgagee fails to make a minimum of three mortgage payments (in contrast to just one under the existing law).
- If it is alleged that there are unfair terms in the mortgage contract, then any eviction proceedings must be suspended while this is investigated, in accordance with an earlier decision handed down by the European Court on the matter.
- Interest payable on any late payments is restricted to a maximum of 12%, which compares favourably to the punitive levels previously charges, sometimes reaching 30%.
- Where the property is to be sold at public auction in order to recover as much as possible of the debt, the deposit payable is reduced to 5% to reserve the property and granting 40 days (up from 20) to obtain the financing to complete the purchase.
- Any property sold under public auction to recover a mortgage debt must obtain a sales price of at least 75% of the value of the property. If there are no bidders, the bank may keep the property at 70% of the offer price.
- Any mortgage debt remaining after the property has been sold at auction or bought by the bank may be settled by the debtor upon payment of 65% of the remaining debt within the following five years or 80% if paid within the following decade. The new laws apply retrospectively and so would also affect anyone who has taken out a mortgage, has fallen into arrears and has not yet completed the five or ten year period.
- If a sale of the property within the following 10 years generates a profit over and above the value of the adjudged debt, then this must be shared equally with the mortgagee.