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Valencia Property

The Spanish Government, Banks and Repossessions.

Up to now if you couldn’t pay your mortgage in Spain you had three months and then the bank would start proceedings to embargo (Repossess) your property. The process would usually take around a year and at the end of the year when nobody bought it at auction because of the debt on the property, original mortgage debt plus around 35% costs on top, the bank would adjudicate it to themselves at 50% of mortgage value, sell it onto an investor, usually another financial institution, and then start the process of recouping the money from you for the rest of time, they could embargo a percentage of your wages above 648 Euros per month.

That has now changed, more of that later, but first the background.

#15M Protest Banner in Valencia

#15M Protest Banner in Valencia

People in Spain are sick of two things, banks and corruption, especially in the political class. The banks are seen to be predators preying on the weakest in society after being reckless, and even brazen in their recklessness for many years, and they are not perceived to be suffering like the rest of the population.

Politicians in Spain are just corrupt and self serving, end of story. No arguments, they just are.

Anyway, the demonstrations of the #SpanishRevolution since the 15th of May have started to have some effect on the government and funnily enough the opposition which has supported the measures below.

The government has now raised to 50% above the previous limit the starting point for banks to embargo some of your future wages if you default, you can now earn 960 Euros per month without the banks being able to get their hands on it, it’s not much but it’s a start. Also the banks cannot now adjudicate the property to themselves at 50% of the mortgage value leaving you to pay the extra, the government has moved the value to 60% meaning anyone embargoed will have less to pay.

However the #15M movement wants the country to go even further and their protests are set to continue. They are well organized and have already stopped evictions taking place in many parts of Spain by forming human cordons around places due to be taken from their owners.

They are also pushing for “Dación en Pago” to be allowed to pay back a debt. What “Dación en Pago” means is returning the keys to the house to the bank as full payment of debt like in the United States and leave the ex owner debt free by doing so. This would assume that banks have been prudent in their lending in the past and if they haven’t then they pay for it. Funnily enough many of the best known judges in the country are fully behind the proposal but despite judicial support it looks like the political classes will not bring it into law as their paymasters in the banks are using their powerful lobbying group to suggest that they will stop lending completely if they are forced into accepting “Dación en Pago”

Here is the opinion part. So what? The banks in Spain are not lending anyway except on their own properties so they can make their books look better. Getting a mortgage, a business loan, a personal loan or even a credit card is extremely difficult for anyone currently, even people with large incomes wanting small loans or well functioning businesses. Let the banks make their threats but bring in “Dación en Pago” and let them suffer. After all every single repossession in Spain so far in the last five years could have been avoided by the government having invested just 500 million Euros (How does that compare with the bailouts of banks around the World then). The banks are vultures preying on those with problems due to the excessive interest payments and abusive contract terms they imposed even during the boom years. Let them suffer.

(And yes I know this will undermine confidence in the banks and lead to Moody’s and Standard and Poors’ lowering Spain’s debt rating. Guess what I couldn’t give a monkeys. Those ratings agencies are totally discredited, after all it was they who gave AAA ratings to junk mortgages and Greek and Irish debt.

Why does anyone listen to them?

What do you think?

Repossessions in Spain

Repossessions in Spain

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10 Responses to “The Spanish Government, Banks and Repossessions.”

  1. This is a really well thought-through article. I am not sure whether some of your readers will be aware of some of the figures supporting the case you make so well: 42% youth unemployment nationally (8% Denmark, 9% Norway – one EU, one not)and over 50% youth unemployment in 7 communities, 22% general unemployment, 1,3 MILLION people hungry every night (Red Cross, Spain figure)and 1,5 million empty homes. Most of those homes were speculative purchases – funded to people who should not have had one mortgage let alone multiple mortgages. On top of that because of the total ineptitude (to be kind)of the German government, we have just lost another 52,000 of the lowest paid workers (= those who can least afford to lose their jobs) because of the e-coli situation “cucumber scare”.

    Why should the banks not suffer? If I make a mistake, I know it is going to cost me. Business decision/divorce etc The banks have deemed themselves above the law. They were (are?) untouchables. I know dozens and dozens of cases of expats getting 100%(+)mortgages where they raised the percentage simply by increasing the value of the house. So is Mr Expat struggled to put 10% down on a 100K house, the bank valued it at 120, “gave” the mortgagee 20K and he is now paying a huge mortgage that NEVER was worth 120 other than in the fertile minds of commission driven bankers. When the crash came the 100k house became worth 70k BUT the mortgage was on 120K ….and of course the guy could not/would not pay. Why he was paying 1,000 euros plus with ZERO equity. In reality he was renting so he may as well take a private rental at 400 or 500 euros on a month by month basis rather than having a 25 year commitment to a depreciating mill around his neck. THE BANKS KNOW/KNEW ALL THIS ….but they continued lending with no fear of one almighty bubble about to bust.

    The trouble now is that many who took second mortgages in their wife’s name, or for their pet budgerigar, blow-up doll or whoever now face paying TWO mortgages and are without any rental stream or “appreciating asset” to cover them so many of the small landlords are really struggling. Rather than take a reduced rent many prefer to hang out for an unrealistic rent hoping that the gullible Johnny Tourist will return. He won’t. Those who are buying the Scandis and the Russians are scalpers. They are ruthless negotiators and will buy on price. They have the money and know that it talks. Show them anything other than a GENUINE huge bargain and they will think you are insulting them and will walk ….. on the spot and with the coffee half-finished. No more bus-loads of wine-sotted Brits and Irish buying anything that moved with a 110% mortgage…as long as they got their free second bottle and fly-buy “discount”.

    There is not word of exaggeration in what Graham has written, not one sentence that cannot be proven …….tragically.

    Will the last person to leave please turn the lights off …..if there is any electricity still connected.

    Posted by Steve | 3rd July 2011, 6:12 pm
  2. Interesting thoughts Steve. I don’t go with the doomsday scenario though. People still want to live in Spain butt the banks need to be brought to account and soon. As you say they knew what they were doing, after all they have done this repo thing before in the 80’s and came out smelling of roses.

    Some might suggest it was premeditated on their behalf 🙂

    Posted by Houses For Sale In Spain | 3rd July 2011, 6:29 pm
  3. I would say it was premeditated!

    Spain WILL bounce as an expat destination. I have absolute confidence it will BUT it will be a long time I fear and not a 3/4 year cycle.


    1) Climate

    2) Familiarity – the N. Europeans have been buying here for 50 years. Morocco/Thailand/Egypt have been damaged massively in the last few months. It makes anywhere “new” vulnerable

    3) Different – It’s familiar BUT different enough to make it seem a “real holiday”

    4) “Green” – trans-continental air travel is going to become exponentially more expensive and certainly the N. Europeans are becoming greeener.

    The empty housing stock will slowly sell. D0n’t forget we have 3,000 living in tents in Lorca after the earthquake,so there are always small blips that will help the economy along

    I have just spent 90 minutes on the phone with a USA company looking to bring their company into Spain. He could not believe the figures re unemployment – he’s got them in writing – and is now looking at Brazil and Denmark. UNTIL there is CONFIDENCE things will stall.

    Now, getting a few expats to move will not solve the crisis here …..but it will help.

    Posted by Steve | 4th July 2011, 9:31 am
    • Surely the unemployment figures would encourage him to come here Steve

      Posted by Houses For Sale In Spain | 4th July 2011, 1:26 pm
      • ..but can the mil euroistas and the unemployed put x thousand down for a franchise of an unknown American brand when they can take over one of the x thousand empty rental bars?

        Have an idea though and I’m mailing you separately re Manises.

        Posted by Steve | 5th July 2011, 5:22 am
  4. It does seem like banks worldwide are above the law. In the Uk Banks are now going to mentor small business – that should be interesting. It’s a tough situation you guys are in but enough pressure will mean that Spanish mortgagees will get fairer treatment when something goes wrong – good luck in getting “Dación en Pago”

    Posted by Sarah Arrow | 4th July 2011, 10:11 am
  5. Have you seen that Bancaja are offering 90% mortgages, with no monthly payments for the first 3 years on their repos. Sounds like buying a sofa at DFS, no? You would think they should have learnt by now that people’s fortunes can change for the worse over three years!

    Posted by Charlotte | 4th July 2011, 4:48 pm
    • Hi Charlotte. Yep they have been doing it for a couple of years now, up to 100% actually. The majority of them are rubbish but there are some decent offers there. Three years living for free then disappearing off the face of the earth maybe?

      Posted by Houses For Sale In Spain | 5th July 2011, 1:44 am
    • It’s called forward contracted income…in my language it’s “Postponing the inevitable”

      On a 100 property they get 10k+ in their bin and a property off their books ….but it is just a nightmare going to resurface in 3 years UNLESS the economy turns round.

      Second issue …you can run but you can’t hide any longer. The days of scooting back with Ryanair are over. The banks study Ryanair’s timetables too nowadays.

      Posted by Steve | 5th July 2011, 5:28 am

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