Complexities of Mortgage Law

IN these days of austerity, more and more people are handing in the keys to their homes to the banks which lent them the money to purchase them.

The name in Spanish is “Dación en Pago” (lieu of payment), which means cancellation of the debt. The debtor provides a service to the creditor, substituting the original debt.

For example, the debtor owes money to the creditor and, instead of refunding such monies, the debtor pays (or cancel the debt) by handing over a property.

The original obligation is changed to another one, which is cancelled. Obviously, it is not the usual way to repay a mortgage loan.

In this way, the debtor (mortgagee) who cannot pay any further instalments, cancels the mortgage (totally or partially) with the bank (mortgagor) and delivers the property instead of the money. Thus, the risk of non-payment is transferred to the creditor.

The Mortgage Law allows for the possibility of agreeing in the Mortgage Deed that the debt is to be fully covered by the mortgage loan. The responsibility is limited to the assets, and there would be no personal responsibility.

This agreement has to be stated when the Mortgage Deed is drawn up. The Civil Code does not mention the Dación en Pago itself, but this possibility is recognised.

But the problem with a Dación en Pago (cancellation) is that it involves a double taxation. The tax is paid when the bank gets the property, and when the bank sells it, which makes this solution more complicated.

The government has just approved the cancellation of the mortgage by Dacion en Pago (refunding the property) even if the value of the property is lower than the debt.

The question is: Who can employ it? We have heard on TV, radio or read in the papers that it is now possible to pay off the mortgage with the property. But it is almost impossible to fulfil all the requirements.

Here’s an example: The bank must be ones to accept the “ethic code” of Royal Law-Decree 6/2012 (if your bank is not one of them, it can apply this regulation).

The value of the property should be lower than 200,000 euros but, depending on regions, this figure changes in the following manner:.

*If there is an existing, foreclosing proceeding in which the auction date has been fixed.

*If there are charges (attachments) after the mortgage.

*If the debtor, spouse or children are employed (even if they are self-contracted).

*If the debtor, spouse or children have other assets enough to cover the debt.

*If the mortgage instalment does not exceed 60% of the net income of the family.

Consequently, if the income is 1,000 euros and the mortgage instalment 600 euros, the Dación en Pago would not be possible.

If there are guarantors

If the debtor passes all requirements at the time of the Dacion en Pago, he could remain as tenant in the property for up to two years (with no renewal), and the annual rental payment would be 3% of the existing debt.

So, if the final debt were 100,000 euros, the annual rent would be 3,000 euros, or 250 euros a month. A 20% interest rate would be applicable to the non-payment rent.

Mariano Zunino Siri is a lawyer registered in Tenerife Bar Association since 1991. Office in Los Cristianos at Edificio Valdes Center Torre “A”, oficina 1, piso 2º. Phone: 922 79 44 12.

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Posted by on May 18 2012. Filed under Legal Matters. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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