When there are monthly payments on arrears, usually, there the Spanish banks give 2 solutions to execute an unpaid mortgage:
1.- Public Auction – Embargo
Once a determinate number of non-paid monthly mortgage payments occur, the bank sue the property in the Courts, and open a seizure process. In this moment, the costs of the mortgage is increased with the delay interest, and all the expenses involved in the Court process (lawyers, prosecutors, official expenses, and judges) are joined to the debt, and, if the client wants to clean the property from mortgage debts, he must pay the TOTAL AMOUNT of the mortgage, together with the new expenses created. So, in the moment in which the bank presents the demand in the Courts, the client cannot avoid just paying the delayed payments, the total amount of the mortgage is then required, and only paying it, and the rest of the costs, the bank cancel the seizure.
Once finished the seizure process, the bank sends the property to the Courts to public auction, where a potential buyer can buy the property per a special price, sometimes being the same amount due to the bank. If something rests, the debtor has to pay the remaining to the bank. The bank, then, will go against the debtor, whereever he/she is, and for the rest of his life, till the amount of the debt is totally paid. Meanwhile, delay interest and expenses will be making higher the debt. This is the Spanish system.
Unfortunately, the price paid in an auction for the property is extremely lower than the eventual market value. Sometimes, in auction the property is sold per the 25% of its price in the market. So, I am sure you have now an idea of the situation created in a lot of debtors who see how they have lost their proeprties and still owe money to the bank.
2.- Repossession – Dacion en Pago
In some cases, the bank is not interested to sell the property in public auction, and prefers to get the ownership of property as payment, and cancels the debt, avoiding the costs and expenses derived from the previous embargo process.
This is called “Dación en Pago”. It means that the bank accepts to get the property as payment of the debt, and, the debt is cancelled in that moment. So, the debtor, after he gives the property, the debt is cancelled.
Sometimes, the bank does not accept to cancel the 100 % of the debt, just whaever is the current value of the property in the market in that moment. So, they apply for an updated evaluation, and they will cancel the debt for such amount obtained.
In these both cases (complete cancellation, or partial), the situation is more beneficial for the debtor than the embargo, because:
– In complete cancellation, the debtor gives the property, and the debt is cancel.
– In partial cancellation, the debtor gives the property for a price higher than the one obtained in an eventual auction, since he receives the updated commercial value of the property.
The worst scenario is that the bank decides to sell the property in public auction, because the price obtained in that sale can be very low, and the bank will go against the debtor for the rest of the debt, even if he/she is living out of Spain.
Our work is to avoid this. So, if you contract our services, we could intermediate with your bank, negotiating with them to arrive to a “dación en pago” solution.