Voluntary Repossession of Spanish Property

Are you suffering for repaying your spanish mortgage?. 

No despair, there is still some hope to get out of this situation...

As a direct result of the economic downturn many non Spanish nationals who purchased property in Spain have been unable to keep up the mortgage repayments. In many cases there is no hope that the property owners will ever be able to repay the mortgage debt that they owe. In these cases, voluntary repossession may be an avenue to consider.

The Spanish banks are able to proceed in three ways in order to realise their security.

The bank may foreclose on the mortgage, which is a procedure not dissimilar to that used by other countries´ banks, other than that the final stage of the procedure is a court regulated auction at which the bank becomes the legal owner of the property, unless a third party purchaser buys the property, increasingly unlikely in the currant climate. At this stage a shortfall may be created, that is the difference between the value of the property as at the auction date, and the level of debt as at that date. The bank may either pursue the debtor for the debt itself, or sell the debt to a third party, who in turn may either collect the date himself, or instruct debt collection agents to do the job. The debt collection agents may be based in the debtor´s country, sometimes even in the same region as the debtor.

Given that the cost of foreclosing on a mortgage is an expensive and lengthy process, a bank may ask the debtor for a power of attorney, whereby the bank can act on behalf of the debtor to sell the property to one of the bank's clients. The selling price may be above or below the current level of debt, and arrangements may be agreed with the bank to ensure that no shortfall remains. However, it is very unlikely that there will be any surplus to distribute to the debtor at the end of the process. Moreover, there is no certainty as to how long it will take to sell the property.

From the perspective of the debtor the best solution is to agree with the bank what is commonly referred to as a voluntary repossession (in Spanish a "Dación en Pago"), whereby the debtor agrees to transfer his/her interest in the property to the bank in exchange for the bank cancelling all of the debt secured against the property. In order to agree to a voluntary repossession the bank will need to know that someone acting on behalf of the debtor and located in Spain is in a position to sign the necessary documentation before a Spanish Notary. The bank will then value the property and consider whether according to its current policy it is prepared to write off any shortfall. Once the bank is happy to proceed it will arrange for documentation to be signed completing the transaction.

Clearly there is an obligation on the debtor to repay the debt, whereas the banks are under no obligation to accept a voluntary repossession. 

It is for that reason that the approach to the banks is best handled by professionals with experience of dealing at branch level and at head office level with the debt recovery departments of Spanish banks.