Although interest rates are at a historical low at present, the economic crisis, the difficulties in the housing market and the euro’s strength against other currencies are creating serious problems for some families when it comes to making their mortgage repayments.
Unlike other countries, in Spain the debtor responds to the mortgage with all his present and future assets; so stopping paying the mortgage has dire consequences not only for the loss of the house in the civil process of the foreclosure, but also for the seizure of bank accounts and other assets belonging to the debtor and guarantors of the loan.
The property appropriation for mortgage repayment is legally regulated in the Civil Code under Articles 1175 and 1849.
Basically what it is, is an agreement between the parties, whereby the creditor (the bank which granted the mortgage), accepts that the debt is covered with property or other assets belonging to the debtor or guarantors, rather than by payment in cash.
You must bear in mind that the bank is not obliged to accept the appropriation of property and they can in turn propose other arrangements, such as the renewal of the mortgage with reduced monthly payments.
In general, banks and mortgage companies are interested in reaching an agreement with the debtor because the enforcement proceedings in the courts will take time and will cost the financing entity money, which cannot always be recovered if the debtor and guarantors are declared insolvent; this means that the property to be appropriated (the mortgaged property) will be in possession of the bank much longer.
In some cases once the bank becomes the owner of the property it rents the property back to the previous owners and even gives these previous owners a preferential option to buy, meaning that they can acquire the property in the event of future changes in their economic situation.
We recommend that a lawyer is responsible for negotiating with the bank from the start, and that they have a special power of attorney drawn up in case an agreement can be reached, so they can sign the deeds to transfer the property. The powers given in this special power of attorney are different to those normally signed, which means that if you have previously given a power of attorney to sell a property, this does not necessarily mean that someone has sufficient authority for agreements such as these.
In most cases the bank will revalue the property; you should bear in mind that the new valuation may be lower than that given when the mortgage was first taken out, and the bank can decide that the debtor has to deliver not only the mortgaged property but any other that the debtor or the guarantor of the mortgage, possess. It is not necessary to be up to date with the mortgage repayments for proposing a foreclosure or appropriation, although in practice some banks do require it. What is required is that there are no other charges on the property apart from those recognized by the Land Registry; this means that the property must be up to date with payments to the community or residents association, the IBI (municipal taxes) or any other taxes and the property should not be rented out.
In the new deeds the notary will record the description of the property as per the certificate from the Land Registry, the charges and the amount of the debt that there is with the bank concerned, and it will also include that the debt is replaced with the transfer of the property which the bank has accepted as partial or full payment of the debt. The parties concerned will make an agreement as to the payment for the costs of the deeds (notary and registry fees).