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Problems facing home defaulters

I HAVE received numerous emails since my last column, and this one caught my eye especially.

That’s because the situation has been happening all over theIslandthanks to the perilous financial predicament many of you are experiencing.

Dear Mariano,

I bought a property in 2007, with a mortgage, in Fuerteventura. It is not my family home. I have had difficulties paying the instalments on time, and that is why I decided to sell and cancel the mortgage.

I was up to date, but I now owe the last repayment. The bank manager will not accept taking the payment when the property is sold, and he is enforcing me to sell the property at a very low price.

Although I want to sell, there is no buyer, so can I just stop paying and let the bank repossess?

N

In one of my previous articles, I mentioned that if you stop paying your mortgage and the bank repossess, you could be still owing monies on top of the property’s value, placed by adjudicators.

In other words, if their value does not cover the total debt, you could be still liable for the equity.

In a previous column, I referred to the “Datio in Solutum”, which is the name in Spanish regarding “Dación en Pago” (lieu of payment). That means cancellation of the debt by other means than what was originally agreed.

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 cancels the debt) and hands over a property.

The original obligation is changed to another one, which is cancelled. It is not the usual way to pay off a mortgage loan. This way the debtor (mortgagee), who cannot pay future instalments, cancels the mortgage (totally or partially) to the bank (mortgagor), and hands over the property (instead of the monies).

This way, the risk of non-payment is transferred to the creditor. The Mortgage Law states 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 authorised. The Civil Code does not mention the “Dación en Pago” itself, but this possibility is recognised.

The problem of the “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.

I will try to summarise the Royal Law Decree 6/2012, which has different measures to protect mortgage debtors without the means to pay.

There are different ways to help those with difficulties, in order to restructuring the mortgage debt (Ethic Practices Code).

There are three phases: the first one, applying a “carencia” in the amortisation of capital (this means payment of reduced interest only, which makes the monthly instalment cheaper) over four years.

The second phase would be to reduce the debt if proposed by the bank (the name is “quita”). The third step would be the “dación en pago”, that should be accepted by the bank.

In the latter case the families could stay in the property for a two-year period, paying a “satisfactory” monthly rent.

Tax modifications

The Deed of Renewal of Mortgage Credits will be exempt from Transfer Tax and Stamp Duty. The one enforced to pay the “Municipal Plusvale Tax” would be the bank (who will not be allowed to pass this obligation to the debtor). The notary and registry fees would be reduced up to 50%.

Repossession

In case of foreclosing, there would be an auction in which the property is adjudicated to the best bid of at least 70% of the value. The debtor will have extra 10 days after the auction to introduce a bidder to improve the said value. If there’s no bidder, the creditor could ask for adjudication of the property in at least 60% of the value.

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.

Short URL: http://www.canarianweekly.com/?p=13954

Posted by on Jul 20 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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