Reverse Mortgage ConsequencesRetrospective mortgage consequences
I will concentrate specifically on property-related mortgage loans in this paper. Mortgage loans are ancillary contracts, since the principal agreement is always the credit itself, which establishes a sovereign right in property (whether moveable or immovable) and is set out in a legal document.
Together with the Mortgagor and the Mortgagor, a Civil Law Notary ( "Notario") will certify and execute both the Mortgage Certificate and the Certificate of Sale. Before the mortgage is submitted, the registrader carries out a second judicial examination. The above suggests that a personal credit which is neither attested by a solicitor nor deposited with the local tax office is not effective.
Indeed, any other mortgage taken out after that date and complying with the above-mentioned statutory procedures will always succeed against all former creditors who did not meet the above-mentioned conditions. The Spanish law requires creditors, before they sign a mortgage certificate, to clearly set out the main features of the mortgage proposed in a written form known as a firm bid.
Mortgage loans are many different kinds. I' ll concentrate exclusively on this paper on real estate related mortgage issues and their major variants. Like the name suggests, the interest is blocked during the entire term of the credit. This allows the borrowers to anticipate their monetary obligations, thus removing any uncertainties about what is due to a creditor each and every creditor on a given date.
However, the biggest disadvantage is that the debtor usually has to make a payment during the entire term of the mortgage in order to make up for the missing risks and to make up for interest rate increases. As a rule, the loans are tied to an index that varies over the years. More than 95 mortgage loans in Spain are of this kind.
The majority of these loans are based on the Euribor interest quoted for the Euro Interbank Offered rate. One of the major advantages is that at low interest levels, like now, your payments are low and you save a lot of time. However, the downside is that if interest rises, your refunds will increase in order to increase your credit to you.
For floating-rate borrowings, points are included in the Benchmark Index. For non-residents, this spreads will be significantly higher to compensate for the credit exposure compared to residents. As an incentive to seduce young people, some creditors can provide interest-free mortgage products, especially for young pairs.
As a rule, in Spain these times last no longer than a few years. It' s a good suggestion for first-time purchasers to find their way around the real estate manager at a point when their revenue stream is either low or insecure. In recent years it has also been made available to fighting mortgage debtors to reduce the monetary strain on their redemptions.
When there is a landmark that I would like to emphasize in this essay, it is this one. Spain provides that a debtor has a permanent and unrestricted individual responsibility that covers all his present and prospective wealth. In contrast to other jurisdictions where borrowers' liabilities in the case of default are restricted to the value of the property itself, in Spain liabilities can have far-reaching consequences.
In Spain, a creditor follows the debtor himself, not the owner, because the liability is individual. This also means that creditors can track you abroad - and confiscate the wealth of your home countries - for the deficit caused by the default of your mortgage credit in Spain. Read more in my articel Spanisch Creditors Pursuing Debts Abroad.
Due to the way in which the forced expropriation system is structured, which is aimed at creditors, a debtor can owe a lot of cash to a local banking institution after the property has been re-possessed as the security. In addition, there is compound interest and the associated redemption costs (e.g. lawyer's costs of the lenders).
Officially, the liability of a debtor in the event of non-performance of a mortgage is twenty years. Practically, however, creditors can suspend this at any moment by giving the debtor notice, thus extending the twenty-year period. Creditors delegate this search for debts to lawyers, who ensure that the debts are always kept afloat by regular contact with the borrowers and by making sure that the 20-year period is always in order.
Behind this, the rationale is that the defaulter may, over the course of history, acquire assets, i.e. inheritances, and may now be able to pay his debts. I humbly believe that this system should be changed and that creditors should be given the opportunity to reconstruct their lives without turning them into parias.
In addition, the creditors provide information to lender ratings agencies such as Experian about your creditworthiness, which can have a major effect in your home state. My Fichero de Morosos articles also contain some further information on the consequences in practice. The bottom line is that failure to honour a mortgage is a very serious issue, which should be examined very thoroughly and, in my view, prevented at all cost.
Luckily, in Spain debt is paid to a deceased borrower (and of course no one in Spain is sent to jail for default). However, the exemption from this general principle is that debt can be passed on in the event of a restless inheritance. There is a procedural law known as tacion en para for those who are or are likely to be in mortgage default in Spain and are considering returning the keys as a remedy.
To a real estate landlord, a decion en pays essentially means the return of the keys to his creditor (assignment of the property) and in return the discharge of the residual mortgage debts. There is a detailed paper on how it works in real life when you study Dación en Explained or how to return the keys.
Section 175 of the Civil Code and Section 140 of the Mortgage Act. Real estate must not be in a situation of having excess capital. No withdrawal proceedings may have been initiated against the borrowing party by the lending party. If you are several month behind schedule, your creditors will still allow you a grace period if you meet both of the above manners.
On November 21, 2008, when I first written an essay on the subject, creditors were more open to the concept of a daughter. But as the turmoil in the global economy has worsened and continues over the years, creditors have become more hesitant to accept the concept of assuming a capital market. This method may only be used by borrower whose property is clearly within the range of surplus capital.
Throughout the years, they have increased the scale so much that it has become unreachable for most delinquent debtors. In Spain, there is now a growing momentum in the grass-roots society to include the lacion en para as a character in our judicial system. One thing that many do not see is that a tacion entails enormous costs for a creditor if he accepts it, not to speak of the ongoing costs of maintaining a real estate (i.e. community charges and land taxes).
And the last thing Spain's banking community needs now is another piece of re-owned land or Tacion to serve as a millstone around their neck as they struggle to ensure financing abroad. Therefore their increasing restraint to embrace a daughter, even if this means recourse to a withdrawal process.
If you would like more information on how to deal with mortgage repayment, please see my articles "Countering mortgage borrowers in Spain". My essay Bank Repossessions in Spain deals in detail with this topic and the associated litigation. The topic is discussed in my paper "Lifetime credits in Spain Explained", which was posted in the SPI on February 21, 2011.
Homeownership in Spain represents over 80% of the total owner-occupied area. The possession of one's own belongings is deep within the mind of Spain. The majority of purchasers depend on a mortgage to fund their dreams. Ensure that you fully comprehend the mortgage conditions before you sign a mortgage certificate. The information contained in this document is of general interest only and is not meant to be a replacement for the provision of expert counsel.
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