Yes, the bank can do that. Generally speaking, mortgage-loan contracts for individuals signed with bank entities include the faculty for the bank being able to choose any of the debtor’s assets, present or future, at the time they recover the debt. Therefore, the bank can proceed against the mortgaged property and also against other assets if the debt is not fully covered by such mortgaged property, and even against those other assets different than the mortgaged property instead of this one.
On July 01-2011 the Spanish Cabinet enacted an executive Decree containing several measures aimed to protect individual home owners against wild bank repossessions. The most important measures are:
- Firstly, in order to lessen the harmful impact of the economy crisis on the citizens who are most defenceless, and more specifically those ones having family burdens, the Decree increases the threshold of not attachable (for seizure) assets when the price received for the public sale of the mortgaged permanent home on a repossession procedure is not enough to cover the bank’s mortgage. Even though in general terms the minimum not attachable amount for any debtor is equal to the Spanish statutory minimum wage (SMI), this Decree now increases such minimum up to 150% of SMI plus an additional 30% per each debtor’s family member not earning income superior to SMI.
- Secondly, the Decree reforms some exiting normative in order to secure that the debtors in a repossession procedure shall receive an accurate price for the house thus enabling them to settle, or greatly reduce, the remaining debt. For this, it is resolved that the adjudication of the mortgaged house in favour of the bank in a repossession procedure will never be for a value inferior to 60% of the house’s certified appraised value whatever the debt amounts to.
This is a useful guide published by the Spanish Property Registrars Association worth reading by every non-resident English speaking investor.
You will note however that even if this guide clearly explains the basic steps needed and even though going through these seems to be presented as an easy job, there will be tasks within those steps that could put the most advised or skilful non-resident in the middle of a nightmarish labyrinth.
Advices such as “Check the legal situation of the house/owner at the Land Registry or Mercantile Registry books” or “ask the registrar for oral advice” or a glorious sentence like: “go to City Hall to find out whether the land in question can be built on” make us believe that the aim of introducing this guide as a manual giving you all you need to accomplish your goal on your own is sometimes naïve even when it is well-meaning.
Practically the whole financial sector will be subject to trial in front of the judge in what refers to the controversial “ground clauses, or cláusulas suelo”, that prevented numerous mortgaged Spaniards or Spanish residents to benefit from the strong slope of the interest rates experienced from end of 2008.
It was known yesterday that the Court for Mercantile matters number 11 of Madrid has admitted to proceeding the greater collective claim presented in Spain against 45 Spanish banks.
The claim, interposed by the association of consumers ADICAE, has been presented in name of about 400 clients, although the number could increase in the next days since, due to it being a collective action, the Court has ordered the suspension of the process for a term of two months so that new interested parties can join. The term to get up to this first claim has been extended at least until end of March.
In a report by the Bank of Spain elaborated at the request of the Senate in May of 2010, it was considered that in Spain 3.8 million people are having this type of clauses in their hypothecating contracts.
The clauses are legal
The famous ground clauses, or cláusulas suelo are clauses included by the banking organizations in many contracts of hypothecating loans establishing a certain level from which the rate of interest is not reviewable to the loss even though the EURIBOR, main reference index of the interest rate for mortgages in Spain, continues its reduction. This level is usually located over 3%, although it varies much of a banking organization to another. It can even arrive at 5%.
These clauses, legal and negotiable, but whose existence a great part of mortgaged population did not, or said not to, know caused and continues causing the popular indignation, since many of the mortgaged people have seen a constant fall of the interest rates in both last years, from 4.25% in October of 2008 to 1% in May of 2009, while such thing has not been translated in a reduction of their monthly payments.
Between the sued organizations are most of Spanish banks and Cajas: BBVA, Banco Popular, Banco de Galicia, Banco Guipuzcoano, Banco Pastor, Banco Vasconia, y Banco Gallego, además de CAI, Caixa Galicia, Caja Castilla La Mancha, Caixa Girona, Caixa Nova, Caixa Manresa, Caixa Ontinyent, Caixa Penedes, Caixa Sabadell, Caixa Rural de Balears, Caixa Tarragona, Caja Círculo, Caja de Ahorros de Cataluña, Caja Extremadura, Caja Badajoz, Caja Duero, Caja España, Caja Canarias, Caja Granada, Caja Insular de Ahorros de Canarias, Multicaja, Caja Rural de Asturias, Caja Rural de Cuenca, Caja Rural de Navarra, Caja Rural de Granada, Caja Rural del Sur, Caja Segovia, Caja Sol, Caja Sur, Cajalon, Cajamar, Ipar Kutxa, Unicaja, Caixa destalvis Unio de Caixes de Manlleu, Sabadell i Terrassa, Caixa destalvis de Catalunya, Tarragona i Manresa o Caja de Arquitectos. The association has announced that its claim will be extend towards other banks such as Santander or La Caixa.
They request the annulment of the clauses
In the claim, ADICAE requests the annulment of these clauses due to them having a manifest disproportion between the grounds and the ceilings of interest rates fixed into the hypothecating contracts.
The elimination of these grounds would have a tremendous impact in the sector, since, as has been already advanced by Cotizalia newspaper, it would reduce the profit margins of the banks in a radical way, to such an extent, that they could not generate a benefit enough to cover the strong provisions derived from the dilatoriness, a fact that, in addition, would bring losses for numerous banking organizations.
So far, a quite recent judicial antecedent exists on the matter. In October of 2010, the Court for Mercantile Matters number 2 of Seville dictated the first sentence in Spain declaring as abusive the ground clauses of the mortgages of BBVA, Caja de Ahorros de Galicia, Cajamar and Cajamar Caja Rural, who were forced to eliminate them and to abstain to use them in future contracts. The banking organization presided by Francisco González resorted to the judicial verdict, describing it as an “isolated” one.
The Bank of Spain, on the other hand, put itself by the side of the financial banking organizations in May of 2010 after publishing a report about ground clauses previously asked by the Senate. The mentioned report calculated in 29% the percentage of mortgages granted to the Spanish families subject to these grounds. In the report it was stated that the tops limiting the impact of the rates of interest in the mortgages “constitute, from the legal point of view, just one more part of the price of the loan”, reason why “whenever they are included in written up clauses of clear and comprehensible way, they must be considered freely agreed”, and “there will be no reason to declare them as abusive ones”.
However, the supervisor admitted the lack of symmetry between clauses of grounds and of ceilings (clauses that restrain the ascent of the interest rates from a different level): In most of the cases, the ceilings do not offer an effective protection to the particular clients from the risk of ascent of interest rates , due to the high levels they reach. In fact, the families will not be protected while the interest of the mortgages does not surpass of average 13.56%.
Yes you can. In fact, banks are forced by law to provide to their clients such binding offer, listing clearly and unequivocally what are the basic terms of the Loan & mortgage with time enough in advance of the meeting at the Notary. for the “Escritura” to be signed These basic conditions and terms include: Interest rate, commissions, charges, penalties, early redemption fee, cancellation fee, insurance requests, etc
Spanish bank agent Bancaja Habitat is attracting foreign buyers to its repossessed property stock with 85% loan-to-value mortgages.
Bancaja has sold around 40 units in the last three weeks to foreign and domestic buyers, who don’t have to start repaying the mortgage for three years.
The reluctance of Spanish banks to lend to foreigners at high loan-to-value rates is seen as a major obstacle to clearing the backlog of unsold and repossessed property in tourist areas. The number of new housing loans issued in Spain last year fell by 22%.
Since the start of the year, several banks have begun offering better mortgage deals and as much as 100% loan-to-value but often tied to specific developments.
“We’re still at a stage of the crisis where more stock is coming onto our books and the numbers are going up,” said Miguel Martínez-Mariño, country manager for Bancaja Habitat in the UK. “We have to take the initiative and ask what we can do to sell.”
So far most sales have been made in Spain, where the company has launched a nationwide advertising campaign across TV, radio and newspapers. But the agent is now hoping to attract to more British buyers and is also offering the deal through its Scandinavian offices.
Martínez said the mortgage offer had a positive reaction at last week’s A Place in the Sun exhibition in London. “We had around 70 enquiries and the majority of people were looking for finance. Their initial reaction to our deal was to ask ‘where’s the catch?’ They couldn’t believe it.”
Source: OPP
Yes it could. It is quite normal that the bank made you sign a document saying that the repayment of the loan originally given to you was protected with the mortgage on the property but also with your personal guaranty, meaning you could be forced to pay the due instalments if the bank chooses to claim these from you instead of repossessing the property, or even in case where the repossession does not cover the debt outstanding.
(From OPP News)
Buyers in Spain could be able to secure 100% mortgages for the first time during the downturn thanks to a new developer-bank partnership.
Customers buying from UK-based developer Almanzora Group will be able to apply for 100% loan-to-value finance through the Bank of Andalusia on properties with discounts of up to 55% off peak price.
The developer has been selling around three properties per week since the start of the year and hopes the new mortgage offer will provide an extra boost to the market. The large discounts make the properties more affordable and so the bank can feel more confident about buyers’ ability to repay the loan, said Almanzora’s sales and marketing manager Simon Coaker.
“In some cases, the mortgage available is larger than the amount actually payable by the purchaser,” he said. “This is because, following last year’s price reductions, current prices of a number of properties are actually lower than the bank valuations.”
Bank incentives
Although the number of mortgages issued in Spain rose year-on-year for the first time in two years in November 2009, such high loan-to-value rates have become almost unheard of in Spain due to increased conservatism among lenders. However, banks are more likely to lend to customers buying repossessed properties or from developers backed by bank funding.
“There are some 85% loan-to-value loans available for bank-owned properties but generally there is still little movement in the market,” said Clare Nessling, operations director for international mortgage broker Conti.
Coaker told OPP that Almanzora was in partnership with the Bank of Andalusia to fund certain elements of its projects, but that the bank also wanted to take advantage of the sales opportunity.
“The banks have seen us doing well and are interested in dealing with our clients,” he said. “Some of our own mortgages are with the Bank of Andalusia but they have competed against other banks for our customers’ business.”
Addressing the long-term sustainability of such large price reductions, he said: “We wanted to create real interest in the property so have allied a mortgage product to selective discounts that will incentivise the market. But we think the 55% discounted stock will sell very quickly and we anticipate raising prices hopefully by mid-year.”
In a verdict released several days ago, the Chamber of civil matters of the High Court partially admits the appeal filed by the Spanish Organization of consumers and users (OCU) against the decision of the provincial court of Madrid who had declared as valid several reported clauses in the year 2005.
Amongst the clauses now voided by the Supreme Court are the ones that exclusively penalised the owners of credit or debit cards for the damage carried by its fraudulent misuse as long as those circumstances were not communicated to the bank. The verdict establishes that “the existence of a loss or theft must be communicated without undue delay since the disappearance is known”.
However, the verdict declares that “clauses totally exempting the Bank of liability indiscriminately and without nuance or modulation are abusive” and “disproportionate”, since “there are very frequent cases where the bank’s diligence warned about undue uses and even warned users, who were unaware”.
The Court situates on the same line those clauses that exclude “whatever the case” the responsibility of the bank when the PIN or card password is obtained by coercion or force majeure.
Magistrates insist that “is noteworthy that, in certain circumstances, banks can warn undue uses using the diligence which from them is enforceable in harmony with their experience and technical resources”.
Pretext to rescind the contract
In thye paragraph about mortgages, the magistrates declared abusive those clauses prohibiting the leasing of mortgaged estates, even though they admit such deeds can decrease the value of the property. Therefore they argue that these clauses should establish how much rent must the owner demand in order to correct the “decreasing value” the lease may cause the bank in the case of non-payment of the loan and of need to repossess the property.
The Supreme Court also rejects that banks include contract clauses regarding the resignation of customers receiving a mortgage or other loans about being informed of these being transferred to another bank or entity. “Its unfairness is unquestionable” because “it implies a waiver or limitation of the rights of the consumer”, the judgment argues.
Another voided condition in the loans paragraph it the one allowing Banco Santander to compensate receivables from clients with those positive balances held in other products, even if they were not their only holders. The Supreme Court understands that this type of clause is valid only if they are “transparent, clear, concrete and simple”, conditions that the wording of the clause of Banco Santander was not meeting.
The Court also termed as “illicit” the power of a bank to resolve in advance term-granted loans when an embargo of the borrower’s assets occurs or his solvency is diminished by any cause.
In this regard, judges believe that this condition is looking for “any negative impact on the borrower’s heritage, actual or potential, can serve as an excuse” to have the contract early terminated, thus ”giving the financial institution a discretionary and disproportionate power (…)”.
Real estate property seizures ordered by Spanish first instance Courts reached 58,686 while the registered number in 2007 was 25,943, according to the General Counsel of Judicial Authority (CGPJ).