There is a popular misconception regarding the process of cancelation of Spanish mortgages.
In general is understood that when the current mortgage amount is paid, then the debt is canceled. And this is true.
But, owners of Spanish properties should remember that, when they bought their properties, and part of the price was paid with a mortgage, there were 2 actions completed in the same moment of the sale:
– The Purchase: this action created separated deeds in which the property was passed to the new owners.
This action created the payment of notary fees, land registry fees, and taxes (VAT or Transfer tax).
The purchase action was completed with the final inscription of the change of names in the registry inscription from the property in the new owner’s name.
This is widely known and accepted by the owners of Spanish properties.
– The Mortgage: This action represents the process from which, the buyers, receive from the bank the amount of the mortgage loan used to buy the property, and is passed to official deeds at the notary office.
These deeds could be a second part of the deeds of the purchase, or can be a separate deed just to consider the mortgage conditions.
Mortgage deeds reseume the conditions of the mortgage like:
amount of mortgage (Capital)
term of payment, etc.
This action, although connected to the sale, is totally independent from the Purchase. This action creates also notary fees, and land registry fees, and even a declaration of taxes, even no taxes are paid for this fact.
Usually, owners and creditors of Spanish mortgages, do not remember well how the mortgage process was done, because, when they bought their propertues, the same banks use to deal with the preparation of the deeds, and the inscription of the mortgage in the land registry. So, the only the purchasers they were called to do when were completing the mortgage, was just sign more papers. That’s all.
This action, as well as the purchase one, results in a change in the registration records in the land registry. In this case, the inscription of the mortgage in the registry of the property is consdiered in the section “charges” of the same property.
Once this is considered, when owners of Spanish properties are selling them, they are confused with the way to cancel their mortgages. As we say, in the majority of the cases, they did not particpated in the mortgage process more than to signing another set of deeds. So, it is normal they do not know exactly how to deal with it.
In their defense, we have to say that, although banks are really helpful to facilitate the setting up of the mortgage, they are not so helpful when their clients ask them to cancel them.
As we say, when banks “give” the mortgages, they organize all the steps till the final inscription. So, their clients only need to sign the deeds on completion, and the bank makes the rest. The expenses derived for the inscription of the mortgage are directly reduced from the amount given as loan. So, they do everything.
But, when the client goes to the Spanish bank and asks to cancel the mortgage, the bank does not proceed in the same way. In the majority of the cases, bank’s staff does not advice in the right way to its customers explaining what we are explaining now, and, even worse, they do not assist their customers preparing the deeds of the mortgage cancelation, filling the tax declaration, and registering the cancelation in the land registry.
They, simply, leaves the client to organize this, and, save particulars exceptions, they do not collaborate with their clients in this way.
So, what to do when the owner of a Spanish property needs to cancel his/her mortgage?
In order to cancel the mortgage, you need the following:
to contact directly with your bank office to instruct them to prepare the breakdown with the current mortgage debt.
once you are supplied with the current debt, you have to transfer, or otherwise organize the payment, of the necessary amounts to cancel it.
once the amount of the debt is paid, then you need to cancel it in the land registry. For this, you have to prepare the deeds of the cancellation of the mortgage in a notary, and then ask athe bank to go there to confirm the cancellation in front of the notary. You have to pay then the notary fees.
once you have the deeds of the cancellation of the mortgage already signed by your bank, you have to make a declaration of taxes. This action does not pay taxes, but, the declaration must be done anyway, just declaring to pay “0”.
after this, the deeds of the cancellation of the mortgage, plus the declaration of the taxes, must be presented to the land registry to complete the cancelation of the mortgage in the land registry inscription of your property.