What happens if I cannot pay the monthly instalments of my Spanish mortgage?
It is crucial that, as soon as you become aware of this problem, you contact your lawyer to attempt to renegotiate the terms and conditions of your loan with the bank, or even to consider handing over the property as payment of the debt (accord and satisfaction).
It is important to stress that loans in Spain are personal, and as such they do not end with the bank seizing the property in the case of non-payment. This would only occur if the bank assigns a value to the property that is equal to the sum of the debt, or if, after foreclosure, the value reached at auction covers the debt and all the legal costs incurred in the process. Otherwise, the bank will keep the property and you will still owe them money.
Furthermore, in the case of debtors that are not resident in Spain, the banks are authorised to claim the unpaid amounts in their country of residence, for which they can legally request that any assets the debtors possess in that country be seized. So, turning your back on the problem is not a solution, it just makes it considerably worse.
When the bank forecloses the loan, the debt quickly starts to grow, as ordinary interest, late-payment interest (which is much higher) and legal costs are all added to the outstanding capital. Obviously, the longer the procedure lasts, the more the debt will increase.
Repossessing the property is also not particularly in the banks’ interest, as the property generates a series of maintenance costs and is a non-liquid asset that they need to release either internally or externally, with all the expenses that this entails. Therefore, there is the possibility that in these situations of non-payment due to unforeseen financial problems, the bank might be prepared to accept the possibility of negotiating a new repayment period or a grace period for a few months, making it possible to reduce the amount of the instalments in order to make them more sustainable.
If it comes to this stage, we can negotiate with the bank on your behalf, whether to find solutions that make it easier for you to pay your mortgage, or to offer the property in lieu of payment of the debt, and to sign the corresponding deeds for mortgage novation or accord and satisfaction.
Do you still have queries on this subject? Have a look in the FAQs about mortgages in Spain.