Friday, February 8, 2013

Spanish Initiative

If you buy a house in the US, or the UK, or in most countries, and you fail to keep up the mortgage payments, the bank has the right to foreclose on your house, kick you out, and sell the house to someone else. Fair enough. If that happens, the repossession of the house satisfies the buyer's financial responsibility to the bank, and the two parties go their separate ways. It is up to the bank to be careful enough when agreeing to a mortgage so that the value of the house secures its investment. And if not, well, the bank earns interest on the loan because of the risk is it willing to take.

In Spain, if you default on a mortgage, according to the current law, the bank will foreclose on your house, evict you, and, here's the real kicker: make you keep paying the mortgage payments. So, not only do they get whatever equity you put into the house, but they get the house, and they get the rest of the loan. It's barbaric. Meanwhile, the mortgagor is on the street, and if they couldn't pay the payments before, you can help me figure out how they'll pay them with no roof over their head.

Many groups have tried to change the law, to no avail. The most recent attempt is by the PAH (Plataforma d'Afectats per la Hipoteca/Platform for those affected by mortgage) who have submitted a "People's Initiative" (ILP: Iniciativa legislativa popular) to the Spanish Congress. So far, they have collected 1,402,854 signatures in favor of changing the mortgage law with some minimum provisions:

• nonrecourse debt, both retroactive and for the future (if the bank forecloses, the debtor is no longer liable for the balance of the payments)
• lodging for those who have been evicted from their houses in empty apartments that belong to banking institutions
• moratorium on primary residence evictions

On Tuesday, the Spanish Congress is slated to vote whether or not to admit the Non-recourse debt ILP for debate. The ruling PP has said it will vote against it, and since it enjoys majority representation in the Spanish Congress, the Non-recourse debt ILP will be effectively dead at that point.

On that same Tuesday, the Spanish Congress will debate a different ILP: one that designates bull fighting as a "Heritage of Cultural Interest" of Spain. Such a law would protect the celebration of bull fighting throughout the Spanish state, and thus overrule the ban on bull-fighting passed in the Catalan Parliament on July 28, 2010.

If that weren't enough, it turns out that the bull-fighting law will be the first Popular Initiative to ever make it to law. It is quite telling—and depressing—that the Spanish Congress can get a law through to force bull-fighting on Catalans, but not update their draconian mortgage system.

1 comment:

  1. This is an important issue at the moment, but I would like to correct a few points.

    You wrote: "the repossession of the house satisfies the buyer's financial responsibility to the bank, and the two parties go their separate ways"

    Not so. First, a foreclosure in the UK is rarely used. It requires a court order and allows the lender to take possession of the property and sell it, keeping the entire proceeds of the sale. If they make a profit on it, you still receive nothing.

    More usual is a repossession. The lender takes possession of the property and is obliged to sell it for the best price possible. While any amount above the amount owed will be paid to you, the more likely scenario is that the property sells for less than you owe. Therefore you still owe the balance. The lender must contact you regarding that debt within 12 years, although if the lender belongs to the Council of Mortgage Lenders they have a gentleman's agreement in place to reduce that to 6 years.

    You cannot just hand in your keys. It doesn't work like that.

    In the US the system varies from state to state, but the vast majority follow the same principles as the UK. Go to the "government made easy" website for what happens in the US and the programs available to refinance homes ("making home affordable") designed to ensure people don't get to this stage.

    The Spanish your house is put up for auction by the court. If sold for less than owed you remain responsible for that amount. If it remains unsold at auction then the lender may take possession of it for 60% of the value of the property as set when the mortgage was accepted. Therefore in the current climate this is a much higher amount than the market value.

    I agree about bullfighting though. Keep it banned in Catalonia.