Indirectly, the credit crunch is affecting Spain possibly even more than it is affecting the rest of the world. This is due to the incredible overstocking of newly built properties, most of which depend on foreign income for their sale and the southern coastal areas are probably the worst hit.
The situation is aggravated by the global higher level of unemployment, high rates of interest, poor value of the Pound and Dollar against the Euro, all making the repayment of mortgages that much harder to meet, especially when high levels of borrowings were taken on property purchases in the first place. The falling value of properties due to the surplus and to the present reluctance of banks to lend are the root cause of negative equity, which is what happens when the value of mortgage exceeds the current resale value of the property.
Unfortunately greed is the root cause of this problem and the blame can only be attributed to speculators who borrowed more than the sale price, to crooked intermidiaries who used valuers just as crooked as themselves to submit valuations well in excess of purchase prices, not forgetting banks closing one eye and accepting such valuations. Now we all have to pay the price.
Many of those who cannot manage to keep up with their mortgage seem to think they can find a solution by giving up their properties and surrendering their keys to the lenders.
In the past it has been known for banks to accept such surrender in full and final payment of the debt and then place the property in an auction to recover the sum unpaid. If the bank accepts, it resolves the problem though, depending on the equity available in the property, it may not be the best long term solution for the borrower. Whereas, in a situation of negative equity, the bank may well refuse to accept this as a solution and decide to pursue the debt against all the assets of the borrower, wherever they may be. In the case of a foreign borrower, the debt could even be registered in his country of origin thus staining his credit rating.
There is a sequence of events that takes place as soon as you are 3 months in arrears with your repayments when the case is passed on to the banks collection department. Failing a last attempt to contact the borrower and recover the debt, the bank will then start filing for repossession and a Court hearing will then take place. This is when an updated property value is defined for the property and a date is set for the auctioning of the property to enable the bank to recover the debt of part of the debt. Of course there is no guarantee that any one will make a bid, in such cases the bank will acquire ownership of the property. Physical ejection from the property will take place some 6 months later should the property not have been vacated by then.
Do remember that banks are not that keen to repossess and they are always open to renegotiate the lending terms. Try it the solution to your problem might be easier than you think.
Please note that this information is given as general guidance only. You should always consult a lawyer with regards to your own personal circumstances.