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What to do if you can no longer afford your Spanish property

A guide to the process of voluntary repossession in Spain
Transcript: 

A direct result of the economic downturn is that Spaniards and foreign nationals alike are defaulting on their mortgage payments in relation to Spanish property. This was most intense during the period from 2009 to 2012 as people realised that the value of the property they had purchased was less than the debt that they owed to banks. Of course, the Spanish banks were irresponsible in their lending policies until 2008 when they turned the tap off. They lent money to many people who had no real way of repaying it, but that's history.

The Spanish banks want to recover the debt and use a range of mechanisms to do so. Sometimes they do so themselves. Sometimes they contract debt recovery companies to deal with the matter. As you'd imagine, first and foremost, they want the debtor to pay back what he owes. If he's missed the last 6 months payments and has saved €5,000 Euros in arrears, that's what the banks want, plus interest and penalties. Of course, if you've defaulted on your mortgage, the likelihood is that you're strapped for cash so that you can't afford to pay €5,000, Euros or even perhaps €1,000 Euros. If the bank is convinced that you are unable to make payment of the arrears then it may consider a voluntary repossession of the propery. That means that you transfer your interest in the property to the bank and the bank cancels all of the secured debt. A lot of people seem to think that by handing the keys to the bank that is the end of their liability. Not so. Documentation has to be signed before a Notary and the bank's interest as owner of the property registered. If the bank doesn't have the keys then with your authority it will arrange for a locksmith to open the front door and change the lock.

So the question is, what does it take for the bank to take that decision?

Different banks have different policies but, generally speaking, they'll want to see proof of your income or state benefit, as well as bank statements and a report from a credit agency, like Experion or Equifax. Once the bank decides that it's unlikely to receive any money from you, it may consider a voluntary repossession. The first step will be for the bank to value the property. The bank will usually pay for that valuation. Once it receives the valuation, the bank will decide whether the difference between the debt and the value of the property is too high to agree to a voluntary repossession. So if the value of the property is €100,000 Euros, but the debt is €150,000 Euros, the bank has to decide whether it's prepared to write off €50,000 Euros. If the transaction is to proceed then either you can come to Spain to sign documents at the Notary's office, or you can grant your legal representative power of attorney to do that for you.

Some banks will not proceed with the valuation until they know that the debtor has instructed someone to act on their behalf, and has granted a power of attorney to that person so sign the voluntary repossession documentation once it's been agreed. Any power of attorney signed outside of Spain will have to be signed before a Notary Public. That is because the Spanish authorities will only recognise a power of attorney signed in that way. Your legal advisor will be able to assist you with the preparation of that document. In addition, you'll need an NIE certificate which contains your Spanish tax number, or NIE number. If you own property in Spain then you will probably know what a NIE is. If you don't have a NIE number then that can be obtained in your absence with your power of attorney and a copy of your passport, certified by the Notary Public. Even though you may have signed the power of attorney your responsibility for the mortgage will not end until the voluntary repossessioin documentation has been signed by your representative on your behalf before a Spanish Notary. 

Jonathan Eshkeri, E&G Solicitors in Spain.

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