Mortgage! Can’t Pay, Won’t Pay!

 A reader writes: “I am having problems meeting my mortgage repayments and I have failed my obligations these last five months: My bank is threatening to take me to court. I have spoken with friends who advise me to give the property’s keys to the bank. Can my husband and I do that? Is this a ‘get out of gaol’ option for us?
Sadly, the process you should follow to resolve your situation is not that simple. The mortgage is simply a guarantee of loan repayment to the bank. The bank does not keep the property unless its value is much higher than the debt, or in the event they have no other option.
If the value of your property is higher than the outstanding mortgage the chance of achieving agreement by surrendering the keys (in Spain the legal terminology being dación en pago) would be higher. This said each bank has its own policies and it depends on which bank you have your mortgage as to their flexibility.
An alternative might be to re-negotiate a new repayment schedule. It is not in the bank’s interest to repossess properties so they should welcome any alternative to repossessing the house.
If you cannot achieve agreement the bank has the right to sell the property at public auction.  If the property can be sold for an amount which covers the debt and the costs of the repossession process your debt will be cancelled at that stage.
The worst case scenario is if offers fall short of the amount owed. The bank then has the right to seize the property for 50 percent of its value. If the debt with the bank is higher than that 50 percent the bank is entitled to claim the balance of the debt against your assets world wide.
This is an important point as most of our clients have been under the impression that their liability is limited to the property charged with the mortgage. Spanish banks are pursuing debtors in their countries for full recompense, which could lead to bankruptcy.
Our advice in these circumstances is to hire the services of a professional lawyer (abogado) who can negotiate the best possible agreement with your bank on your behalf.
If you have a legal problem that may need addressing contact Javier Moya or Michael Walsh. 0034 662 06 74 90 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it.

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