Do you have a property in Spain but cannot pay the mortgage?

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The economic difficulties inflicted by the COVID-19 pandemic are far-reaching, affecting the security of jobs, viability of businesses and payment of mortgages. If you are a non-Spanish resident who owns a property in Spain, either as a holiday home or as an investment, the current situation may have left you struggling to meet your monthly payments and the problem of unpaid instalments.

Faced with this prospect, it’s vital that you contact your bank sooner rather than later to explain the situation and find a solution. If you are no longer able to pay the mortgage but have not yet taken action, your bank will attempt to contact you to learn more about your circumstances and seek a way forward. Often, this is not an easy task and may even prove impossible if the owner has changed addresses, emails and phone numbers.

Depending on your current situation and the length of time over which you have failed to pay your mortgage, there are few options that the bank can pursue:

  • After one or two months of non-payment, the bank will provide the holder with the arrears. That is the sum of the outstanding monthly instalments plus late payment interest and expenses. Once the arrears are paid, the holder can continue with making the normal monthly repayments.
  • If non-payment of the mortgage stretches to a few months, the bank will continue to attempt collection of the unpaid instalments. It’s possible that the bank could agree an extension of the time permitted to pay the mortgage and a reduction in the monthly payment. This is called Novación (Novation). The holders of the mortgage will need to sign these new conditions, either in person by attending the Notary in Spain or through Power of Attorney.
  • If the mortgage has not been paid for six months or more, the bank could start legal proceedings in Spain to repossess the property.

Once the legal proceedings have started in Spain, the holder of the mortgage can still pay the arrears in full in a single payment to avoid the repossession of the property.

However, even if repossession takes place, depending on how much money has been obtained from the auction, there may still be a debt remaining.

If the amount obtained through the auction is more than the remaining mortgage, the mortgage can be cancelled in full. However, if the amount obtained is less than the remaining mortgage, the mortgage holder will be liable to pay the shortfall to the bank, along with late payment interest and expenses, etc.

Dación en pago – transfer of the property to the bank

Dación en pago means that the bank can consider the transfer of the property to them in full and final payment of the liabilities that you have with them.

Many people are under the impression that by sending the keys to the bank or leaving them in the local branch letter box, they are relieved of all their debts. However, nothing could be further from the truth as the bank must firstly approve the transfer of the property to them. One factor to consider is any additional debts which may be connected the property, such as community charges, Council Tax (IBI), unpaid utilities bills, etc.

If the bank agrees to take the property back, the current holders must sign the transfer of the property to the bank in front of a Spanish Notary, either in person in Spain or by granting Power of Attorney so that the transfer can be signed in Spain on behalf of the holders. The property must then be registered at the Land Registry in Spain in the bank’s name.

Until these steps are completed, the owner of the property in Spain is liable for the debts.

Our experienced bilingual team can assist you with the following:

  • Dealing with your bank in Spain to try to negotiate the best solution for you
  • Assisting you in obtaining a Power of Attorney in UK to appoint an attorney in Spain who can sign any transaction on your behalf
  • Obtaining NIE numbers (tax number)
  • Dealing with probate in Spain

For more information on how we can help, please get in touch.