Outstanding Spanish mortgages and auctions
March 21st, 2011
Over the last year or so we have had lots of people contacting us looking for solutions to problems that they have with their Spanish properties. Many of them bought when prices were high in the expectation that they continued to increase in value. Many of them have mortgaged themselves as high as they were able to allow them to buy the property. Providing that the prices carried on going up, they were able to find people to rent from them and they had a secure job which allowed them to make up any mortgage shortfall then this seemed like a good investment for many people.
Of course what has happened over the last couple of years is that house prices in Spain dropped and people weren’t able to rent out the properties as much as they expected. The lack of rental was sometimes down to buying the wrong property in the wrong location, sometimes down unrealistic expectations as to rental and sometimes down to agents over selling rental possibilities. Whatever the reasons for this, the end result is that many people have had a shortfall in their mortgages each month and have had to make up for that shortfall from other funds.
Making up the mortgage is fine providing that you are prepared for it. If you are not then it comes as a shock – particularly if it comes at a time when job security and salaries aren’t what they used to be. If you combine this with property prices in Spain dropping it is no wonder that people are having problems – they often have a property that is worth less than they paid for it, less than the amount of the mortgage and are not able to bring in the rental income to pay for the mortgage. I regularly have discussions with people about whether the bank in Spain can come after you in the UK for any debts in Spain. The answer is yes, they can. As a lawyer I regularly help people enforce debts across different jurisdictions.
A recent case in Navarra brings some potential hope to people in this situation. In this particular case a property was sold to satisfy the amount due on the mortgage. The amount recovered at auction was less than the amount outstanding on the mortgage. Now normally you would expect the bank to be able to come after their client for the balance due on the mortgage. However, the judge in this particular case saw things very differently. What he said was that as the bank had valued the property when they gave the mortgage they obviously thought that the amount of the mortgage was covered by the value of the property. He then went on to say that therefore the bank could not recover any shortfall between the sale of the property and the mortgage outstanding and that them taking the property back was enough to satisfy the amount outstanding on the mortgage.
This all seems rather strange to me. Properties can go down in value as well as up and the mortgage was a loan for a certain amount. Reading between the lines of the judgement it appears that judge was trying to make a statement regarding mortgages. It seems like he was blaming banks for over valuing properties and for irresponsible lending. He therefore thought that they should shoulder the responsibility for this.
Naturally this case is causing the banks to pay attention. How they will react is yet to be seen. It could be that they stop their practice of overvaluing properties (how many times have we seen the offer of 100% mortgage in Spain which is actually an 80% mortgage on an overvaluation of a property?). It may be that the minimum amounts that they will accept at auction increase. Time will tell. However, in the meantime this case does give a glimmer of hope to those people with negative equity and who cannot pay their mortgages.
Courtesy of Peter Esders, a solicitor at Chebsey & Co. He can be contacted at 51 London End, Beaconsfield, Buckinghamshire HP9 2HW Tel: 01494 670440 or Email: pje@chebsey.com
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I live in the Ayora Valley. Expats have been receiving letters from Valencia stating that 4 years ago land in that area should have been priced at euro 3.61 therefore they are sending bills to that effect.
How do they want to attract people to spain with letters like that?