Repossession or Dacion en Pago?

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02 Aug 2009 00:00 by Ultraclean Star rating. 40 posts Send private message

Can anyone assist me?

We, like many others, can no longer pay our mortgage on a Villa in Sucina, Murcia. I have done everything possible to sell it at over €100,000 below what we paid, with no luck. Since completing on this property last July (2008) we have emigrated to North America and have been funding this Villa from our remaining funds until now, in the hope that we could sell it and just pay off the mortgage.

The bank has offerred a Dacion en Pago? but this entails paying for a valuation and paying for lawyers to act as Notories, which by the nature of my situation is rather baffling, because I have told them that I have no money left!

What are the differences between dacion en Pago or a Repossesion?

Surely I can just have the keys handed back to the bank? I have never been in this situation before.

Does the bank have any right to chase you for any other monies? Can they approach your UK bank to assist them? I have a very small amount kept in the UK to cover my daughters education costs, i cannot afford this to become jeopardised. Can Spanish banks go after your money in UK banks?

I hope that someone can help with these questions, I feel a bit in the dark and would prefer to just take my losses and lick my wounds rather than continue to worry about everything.

S





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02 Aug 2009 23:29 by DJS Star rating. 16 posts Send private message

03 Aug 2009 12:46 by Lawbird Star rating. 59 posts Send private message

Lawbird´s avatar

Dear Sir/Madam,

The Spanish name for "handing back the keys" to the lender is called "dación en pago en deuda".  Please read our articles on the Dación en Pago Explained and on the Dación en Pago Procedure for more details.

All it is, is that your lender agrees to buy-back the property from you and in exchange they will write-off the outstanding debt having it fully discharged. You will not receive any money. This is formalised by means of signing a Deed at a Spanish notary and you surrendering the keys to them.

The reason people do this is because on you defaulting servicing your Spanish mortgage the lender can repossess you. Please read our article on bank repossessions in Spain If after they have repossessed you the property is left in negative equity, meaning you owe the bank more money than what the property is worth, they can actually pursue you abroad in your home country.

In other words, unlike the US, you are personally at fault on owing money to the Spanish lender as per art 1911 of the Spanish Civil Code. The property itself, the collateral, was only guaranteeing the bank loan. Post repossession you will be held personally liable with all your assets, both now and in the future, for the difference between what you owe the bank (plus the repo associated expenses, lawyer's fees, default interests etc) and what the property is now worth after the full repossession procedure is over. The same thing happens in the United Kingdom.  

That is why many defaulting borrowers in lieu of being repossessed would rather either sell the non-performing mortgage as a distressed asset (of which there are now many websites available) or else follow a dación en pago procedure if they are unable to find a buyer in time.

For a dación en pago to work out, two things are required basically:

1.- The property must not be in negative equity.
2.- Your lender must not have started a repossession procedure against the property.

Basically the outline of how it works is as follows:

1.- The customer must be on time with payments (the repossession legal procedure must not have been initiated), with Community fees and also with local taxes.
2.- You contact your lenders' branch manager and propose it to them.
3.- The lender will require it to be reappraised. You will be expected by your lender to pay this in advance. On average it's approx 350€.
4.- If [I]on average[/I] 80% of the new valuation of the property covers (debits +13% of the debits like legal expenses) the lender will accept to take the possession of the apartment, cancelling your debits and will waive taking legal action both in Spain and at the British courts.
5.- The day of signing the Deed at the Notary, the borrower will surrender the keys, and leave the property clear of furniture and tenants.

It is not compulsory to hire a lawyer for the dación en pago. What is compulsory is that you appoint a translator to act on your behalf if your command of Spanish is low. However, if you don't hire a lawyer be warned that problems such as this may happen:

Can we be chased by the bank after arranging a Dacion en Pago?

We just cannot stress enough how important it is to appoint a lawyer who will act both as a translator and also verify that indeed your debt with the lender is being effectively fully discharged on you signing the Deed. Besides your lawyer will be able to negotiate with the lender as some banks will try to make borrowers pay for some expenses. The Notary is not there to give you legal advice as they act impartially to either party.  

We advice you contact your lender first prior to hiring us and see if they accept the dación en pago. The reason is that the above legal fee is a retainer fee and will not be refundable regardless of the outcome. So it's a good idea to first make sure the bank will accept the dación en pago before you hire us. If you think they are dragging their heels (as you write) and weeks go by without feedback it might be a good idea to hire us to help push the matter through.

Yours faithfully,
 


 



This message was last edited by Lawbird on 03/08/2009.



This message was last edited by Lawbird on 03/08/2009.

_______________________
Lawbird Spanish Lawyers http://www.lawbird.com



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