There was a time, not so long ago, when mortgages were literally given away like confetti. Although banks offered a maximum of 80% of valuation, with the help of a not so honest lawyer or estate agent or mortgage broker you could supply your own valuation to the bank with the result that borrowing 100% of the purchase price was common place. In some cases even the purchase costs as well as furniture were added to the sum borrowed.
There was nothing to lose in buying a property in Spain; the rate of interest was low and house prices seemed to rise almost daily. Now that the bubble has burst, that horrible word negative equity is rearing up its ugly head again.
In the last recession we have seen, for the first time ever, that not even bricks & mortar are safe, now it is happening again and property values are falling below the amount of mortgages, especially in the cases of over borrowing.
What must be remembered is that in Spain you just cannot fall in arrears for more than 3 months, beyond which point there is no help and repossession of the property may well be the only foreseeable outcome.
This is why you should take action as soon as possible, well before getting past the 3 months arrears and the first thing to do is to contact your lender and honestly explain the reasons for the problem as honestly as possible. Do so on your own, dont take any professionals with you, managers do speak foreign languages, especially English. Many borrowers leave this option until last and often too late to resolve the matter before the 3 months elapse.
Do remember that you would not be the only person with such a problem and if your property happens to be your home or if you are not in a negative equity situation it is imperative to resolve the situation and salvage your investment.
Probably to force this issue, banks have recently introduced a system whereby if you are in arrears with any repayment, including credit cards or if you are in the red in your bank account, all is frozen until the matter is rectified. For example, you would not be able to use your credit card whatever its credit limit might be, if your current account shows a red balance.
In general you will find that the manager will be responsive and try to sort the problem with you; remember that repossession is the last thing a Spanish bank wants to do.
There are solutions that can satisfy the lender and make life easier for you until the economy recovers, which it will do eventually.
For instance look at ways of making interest only repayments for a while, or lengthen the mortgage repayment period thus reducing the cost per month. You might even be in a position to rent the property to pay for the mortgage. In some cases the bank might accept to restructure your borrowings in order to reduce your monthly outlay, even adding any arrears to the total borrowed. A combination of all these could also become an acceptable solution. Once you have reached an agreement, by all means do consult a professional before signing on the dotted line.
If the lender shows reluctance to help, which of course can happen, remember that he is probably just as reluctant to repossess, therefore it might be worth responding with the promise to hand over the keys in payment; the chances are that he might become more cooperative.
Handing over the keys to the bank should be the last resort and should only be done when everything else fails.
There is a law in Spain which permits a borrower handover a property to the lender in payment of a debt or mortgage, it is called dacion en pago, naturally there should be equity available to enable the lender to sell the property and get his money back. In the case of negative equity, the borrower will still be responsible for the balance owing which the lender may or may not wish to pursue against the borrower. Remember that handing over the keys to discharge a debt, means that the lender can sell the property at any price even just to recover the loaned amount, and if the real value of the property is above the outstanding mortgage, it is very hurtful to see someone buy your house below its true value. Before you take any action is respect of surrendering your property to a lender, you must consult a lawyer and let him advise you and deal with it.
Please remember that the above information is given for guidance purposes only. You should always consult a lawyer in respect of your own personal circumstances