EU Property Solutions- Experts in all Spanish property issues

Are you a victim of the 2008 financial crash with unwanted property in Costa Del Sol? If so, this post is for you.

For many, the idea of owning a holiday home on the sunny south coast of Spain was a dream come true. Unfortunately, due to the aftermath of the 2008 property crisis, this dream quickly became a nightmare. A lot of these foreign property owners have now been lumbered with incomplete units and lost deposits essentially sucking them into a problem that wasn’t theirs, to begin with. 

We recently took a trip to Costa Del Sol to visit the developments in the region including Duquesa Village in Manilva and Casares Golf Resort. We find that these trips are helpful to keep an eye on the status and condition of these properties. You can take a look at some of the photos from our trip below: 

We know that things can look bleak for those of you still paying astronomical mortgages on unwanted foreign property. We understand the situation all too well: you may not understand the Spanish laws, you may not understand the Spanish bureaucracy alongside a language barrier, it's very easy to feel like you have your back against the wall.

Know that there are always options! 

Today's blog brings you 9 tips to help alleviate your foreign mortgage issues. Providing a glimmer of hope, no matter your current circumstance. 

Acknowledge your problem. Burying your head in the sand or being unrealistic helps no one - especially you. To be able to solve your problem, you need to accept it. You need to know precisely what your current situation is and every aspect of it, and say to yourself: “Hi, my name is XXX, and my house in Spain is in negative equity."

Quantify your problem. Ok, let's explain, if you have a £100,000 shortfall on your property, you have to pay every penny back. However, do bear in mind that to make the problem disappear actually involves paying back c£140,000 - taking tax into consideration. Basically, you have to earn c£140,000 before tax to leave you with the £100,000 after-tax you need to pay your debt. Therefore, it is not a £100,000 problem, but a c£140,000 problem

Be realistic in terms of time and money. To manage your situation in the best way possible, be patient and understand that it will take longer than you think or want and that it will cost more than you hope. 

Look at the emotional toll. Understand that resolving your property nightmare is not just about time and money, but also the emotional effect it can have on you and those around you. It will be stressful, so choose an approach with the best outcome and the least emotional cost. Do you really want to create a situation that potentially jeopardises your health, wellbeing, and relationships?

Don’t try to deal with your situation in isolation. Consider the bigger picture and your financial standing overall. Take into account how financially fragile you are. If you’re financially strained, don’t make silly decisions that only fuel your debt and escalate your situation even further. Evaluate all the risks and be sensible within your means.

Appoint the right advisors. Despite what you may think, you can’t do this on your own. It’s too much of a minefield without professional help. However, less able experts will use the persuasive power of numbers and impressive statistics to wow you.

Presentation is everything! If you do decide to go full steam ahead to resolve your issues alone, prepare well. Your presentation must have up-to-date financials and critical information – or it will end in disaster. This is where you need a company that is adept at compiling financials, untangling property situations, and fully explaining every stage. By presenting a realistic and clear case to the Banks, they are more likely to settle with. 

Taking the problem to the lender. If you’ve tried in the past to resolve your situation and failed, it does not mean you will fail again. Suppose you did previously try to engage your lender for a resolution, it could be that, they didn’t have the enthusiasm or inclination to do so. They simply avoided it. However, when they have experts coming at them, they don’t have a choice!

Last, you need stamina and patience. Ok, not just a little bit but bucket loads of the stuff. This whole property resolution challenge is not for the faint-hearted.  This is our official warning sign to you, without tons of stamina and patience, you will find the journey even tougher than it is!

Enticed by initial low monthly interest repayments, buyers were mis-sold with the expectation that property values would rise quickly. So, paying off the final bill on the capital would be easy. With that, and the additional possibility of earning a potential rental income to more than cover the monthly payments, what could go wrong? Well, a catastrophic financial crisis and unexpected fall in property prices hit!

Typically, these mortgages were sold with 10-15 years of low interest-only repayments before paying off the actual loan. It seemed entirely feasible for buyers, especially with the ‘imminent boom in prices’ predicted. The problem was these impressive promises were overshadowed by a complete lack of due diligence by the ‘professionals’ they trusted.

It’s entirely understandable why buyers were dazzled by the lure of relatively small monthly repayments, for what was then deemed to be an extended period, against such attractive yields. The purported riches and cash flow created from their purchase all sounded fantastic. However, like most, if not all, 'too good to be true' scenarios, it was.

With the interest-only mortgages, property owners were often caught in a perfect storm due to falling property values and the meteoric rise of monthly repayments from interest-only to a repayment-style mortgage, dashing any hopes of guaranteed yields.

This terrible mix of interest-only mortgages and their perception of assured revenue severely affected buyers in every sense. It was further exacerbated because the 10-15 year period of interest-only mortgages usually takes the purchasers into their early retirement—a time when changes in income can be devastating. 

Overall, this lack of financial due diligence and the over-inflated property market was a crisis waiting to happen. And, to all intents and purposes, left these interest-only mortgages worth less than the paper they were written on.

Do you think that you have been mis-sold a Spanish Property?

If you obtained a mortgage in Spain between 2004 and 2008, you were undoubtedly mis-sold the mortgage by today’s standards – for sure.

A lot of people in this situation were interested in buying a property at that time but were subjected to unscrupulous methods undertaken by:

• The developers.
• Their agents.
• Notaries.
• Mortgage Brokers.
• The Banks. 

Can you get compensation, write-offs, or any other Court award? Unfortunately not!

Yes what happened was 100% wrong, and yes it was unfair, but in 99.99% of the cases, the Courts will find that there is no case to answer. People who have attempted to get what they see as justice, have spent tens of thousands of Euros and years of their life, fighting the Spanish Courts.

A lot of these Spanish property cases are 'not fit for purpose'. 

This representation of the Court system may seem rude or harsh, but on the ‘flip side,’ it applies to Banks and their actions. Typically, a repossession case takes four years to complete and in various meetings with high-level Bank officials in Spain, they echo our ‘not fit for purpose’ claim, in terms of the Courts.

That said there are other routes, plans, and solutions to deal with the disposal of holiday homes in Spain and getting rid of a troublesome mortgage.

We all know what would happen if you stopped paying your mortgage in the UK, the same applies if you don't pay your foreign mortgage for a property in Spain, regardless of whether it's in Duquesa Village in the Costa Del Sol, Corvera Golf, or Hacienda del Alamo in Murcia.  

There are some foreign property owners who believe and hope that a foreign liability will not follow them back to the UK or Ireland. Unfortunately, as much as we would all love this to be the case, this is incorrect, and the foreign lender can legally come after you for outstanding debt due to cross-jurisdictional regulations. 

A lot of foreign property owners find themselves in situations where the mortgage is greater than the house value, therefore they stop paying and attempt to leave the keys with their lender, e.g. Sabadell, UCI, CaixaBank, Leeds Building Society etc. 

Many of these borrowers don't actually realise that they are in negative equity and are putting themselves in serious jeopardy as the outstanding debt can be pursued back in their home country. 

In the worst-case scenario, if you don’t pay your mortgage, arrears will mount on your account, and following a period of greater than three months, your lender can commence repossession proceedings. Many courts in Europe are inundated with repossession cases so the process may be a lengthy one. 

Once repossessed, your lender will then highly likely market the property. Many properties sold in possession are purchased at a far reduced value often around 60% of open market value. This can increase losses for both the Bank and the borrower.

When the Bank sells the property, it's likely that the borrower will be left liable for any shortfall balance if the property was in negative equity and this can be collected by lenders in your home country. We have seen instances when lenders have appointed UK Solicitors or Collection Agents and placed a second charge on a borrower’s home, it's important to be aware of all of your options at this stage so you know how to best attack the issue. 

It is essential that you do not ignore your lender and liaise with them if you have any issues paying your mortgage, if not your home assets could be at risk which is always something that wants to be avoided if possible. 

There's always a solution, ensure you know all the options available to you!

It could be believed that 2005 – 2008 was a prosperous and positive time; with the Economic Boom and thousands of Brits and Irish, finally being able to afford the dream purchase of a ‘luxury’ holiday home in places like Spain or Cyprus.

We see this experience in a different way. It was a time where the ‘buying frenzy’ was encouraged by duplicitous bankers, promoters, and developers.

For buyers, funds were easy to access both at home and abroad; non-status mortgages were two a penny, and credit checks didn’t even factor into the equation. With little to no barriers stopping the purchase of ‘too good to be true places’; it was only a matter of time before the foundations of this property boom literally crumbled underneath us all.

It was no wonder that in the autumn of 2008 when the world stopped turning and the financial crisis hit. These properties built on financial sand in the years before, suddenly sank quickly into Negative Equity; leaving people stuck with unwanted debt.

Countries including Cyprus and Spain were savagely hit as the whole banking industry was shored up by their State Banks. The collapse of the financial sector, and many of its long-established institutions, started a domino effect, leaving those at the end of the chain the main losers.

Those who dared to live the holiday home dream have now, unfortunately, become victims of the Economic Boom. Their once refreshing holiday cocktail soon left a bitter lingering aftertaste that is still being paying for to this day.

If the above sounds familiar and you have found yourself stuck with a Foreign Property in Negative Equity, you're not alone and there are plenty of solutions & resources out there!

During the property boom in Spain, there was a massive spike in building and lending activity. Numerous large developments were built with the foreign investor as the prime target audience. Some of the key names in the property development world at the time included Polaris world, Oceanview, and MRI.

Bought the ‘dream’…

Areas in coastal regions such as Costa Del Sol & Costa Blanca were of key interest to the overseas property buyers. They were seeking the picturesque, tranquil, holiday location that the brochure sold.  Property developers were selling ‘dreams’ to foreign investors and many UK and Irish customers were sold on this ‘dream’. A luxurious golf and country club or the desire for a property overlooking the sea.

According to the reports of the Bank of Spain; from 2000 to 2009, 5 million new housing units had been added to the existing stock of 20 million. Some of the areas which we know were affected specifically, include; Roda Golf, Manilva Hills, Corvera, Torrevieja, Estepona and Los Alcazares.

During this time, it was presumed that buying property in Spain was as ‘safe as houses’, pardon the pun.  Banks were far too willing to lend money and coupled with a corrupt planning regime; this resulted in a toxic concoction that was only ever going to end one way.

Living the nightmare…

After the property bubble burst prices started to fall. Buyers became less and less eager and developers, starved of loans by Spanish banks going bust.

In the lucrative areas where the ‘dreams’ were sold, particularly the coastal regions of the Costas; there are unfinished developments without water and electricity, and without any prospect of being sold. For those that were finished, people are left with a property that they no longer want, that is in a deserted and run-down development. The dream is now a reality, a harsh and very different one than what was sold.

Many re-mortgaged their own homes in the UK to raise equity. This has put their own homes at risk at a time of life where most would want to be retiring and enjoying life.

Speak to the experts in foreign property debt!

We recently hosted a webinar back in July in respect of Interest-Only mortgages. We have had quite a bit of interest in this very niche subject, especially as it is becoming more and more relevant as time goes on.

We have seen and helped hundreds of clients who had taken out Interest-Only loans who are now paying the hefty price.

This type of mis-sold mortgage issue is something that we’re seeing with our borrowers. They come to us after realising their 15-year Interest-Only period is coming to an end. We had a recent client who found out that his monthly repayments would go from €250pm to €2,150pm; an extremely high spike in payments that would very quickly become unfeasible. One that brought it to a head was literally a ten-fold increase in the requirement for the monthly payments.

When it comes to loan sales, they are very often sold to vulture funds. They are different animals completely and these situations are becoming more prevalent. Last month a Spanish bank even sold a performing loan book. Everything was up to speed and good, but they still sold it on so be careful of that backdrop.

Undoubtedly many people were mis-sold properties however, they will not win that argument or that war. There is one bank in Spain that has sold a lot of these Interest-Only mortgages but there are other banks involved too. If people, try to do direct approaches respectfully we suggest don’t. In this webinar, Terry goes through why you shouldn’t do that and how we can attack the problem.

There is currently an increasing problem in Spain with ‘Squatters’ unlawfully occupying unused holiday homes.

With Covid-19 travel restrictions ongoing, many holiday homes across Europe have been sitting empty for over a year. This has made the likelihood of Squatters in Spain invading properties more likely than before the pandemic.

This blog is not us trying to scaremonger but spread awareness for holiday-home owners that there are options and solutions if you or anyone you know is experiencing squatters occupying their Spanish home.

Squatters are moving into these empty properties, making it their home and fitting new locks. They also avail of the properties water, electricity, and bins; leaving property owners left with increased bills and bins which cannot be used.

In a recent interview with Ena Cummings; squatters were described as “vile, evil beasts” who should be thrown out immediately. Unfortunately, due to Spain’s insufficient legal system, Community Presidents not taking action, Banks being irresponsible and the countries water and electric board turning a blind eye, therefore, this means that property owners are left to deal with these squatters themselves.

In Ena’s community, there are 8 squatters who not only have moved into the development but have displayed public indecency. They have thrown bleach and wine at homes on top of stealing water, electricity, and their bin facilities. Ena expressed that the community wanted an AGM with the community presidents.

“It was arranged in 2019 to get the removal mafia in from Madrid. This was to remove the squatters, to get a loan, and pay it through our community fees (which was agreed.) But our two so-called presidents won’t sign the forms as they don’t want to throw people out on the street.”

The only guaranteed way to get squatters removed from a property is to hire a removal mafia from Madrid. This comes at a fee of €5,000. The other option to protect an empty home is to pay €35 a month for a photographic alarm system. The alarm system will notify the Guardia Civil who can throw them out within 48hrs. Nonetheless, both options add further expense to unused holiday homes in Spain.

Ena is adamant that “Spain needs to change their law, but it’s going to get worse before it gets better."

This blog will be providing you with tailored advice on how to avoid these pitfalls when buying or selling property in Spain.

The Spanish property market has been through a turbulent period over the last decade. It's important to work with borrowers assisting them out of difficult situations often not caused by themselves as they fell victim to the Property Crash.

The 2007-2008 crash has led to people looking to sell and get out of the property burden and those looking for a bargain investment.

We have a few pointers if you’re considering buying or selling a property in Spain.

SELLING:

Price the Property to Sell

• The property market in Spain has masses of supply currently, especially in the British/Foreign investor market.
• Your property needs to be priced to sell, or it will sit on the market for a long time.

Will you clear any outstanding mortgage and debts?

• Will your sales proceeds (sales price less costs) clear your outstanding mortgage?
• Do you owe any debts for IBI taxes or Community Fees?
• If you do not clear the mortgage your lender will not release their charge on the property and the sale cannot complete.

 Sales Costs

• 3% Capital Gains tax if you are a non-Spanish Resident.
• Estate Agent fees are 3-6% of the sales price.
• Energy Efficiency Certificate typically €150-€300.
• Plus Valia Tax – this is a local tax on the increase in the value of the rateable value of the land.

BUYING:

Purchase Costs

• Legal conveyancing fees
• Land Registry Fees
• Notary Fees
• Income Tax Provision when purchasing from non-residents.
• Bank fees for money transfers and mortgage fees.

 Future Costs of Ownership

• IBI Taxes
• Community Fees
• Utilities
• Insurance
• Non-resident tax

It all adds up.

 Understand what you are buying.

• Research is essential
• Is your mortgage affordable in the long term? Does the rate change?
• What rental yield can you achieve – be careful if you have been promised a yield. These often don’t materialise.

Brexit and your registrations.

• Have your NIE number ready well before starting the purchase process
• Open a Spanish Bank account well before the purchase process.
• Brexit implications for use of property need to be understood.