27 Oct 2012 8:42 AM:
This is a fascinating thread and hopefully it offers certain solutions to some.
Sadly however for many who purchased with substantial mortgages over the last few years where the valuations at purchase we high - and so the resulting mortgages were high compared to the assessed value at purchase - the borrowing is now significantly "underwater" - meaning negative equity.
As an alternative to a Dación en Pago, many banks are faced with the choice of whether or not to undertake formal repossession proceedings. These are very costly and at the end of the auction process the bank effectively "buys back" their mortgage lending to enable them to enforce the repossession. Once recovered the bank will then be required to place the property back into its stock of unsold assets and look for a new incoming purchaser.
We have had success in assisting banks with a process called a "Posesión Pacifa". To achieve a success here the owner(s) of the property must be willing to accept that they have lost all or the majority of any equity that they introduced when purchasing. With fallen valuations this is a bitter pill that many have to accept.
Once back in the bank’s hand by way of this procedure they will invariably internally provision – as they are increasingly obliged to do by Banco Espana/ECB pressure etc - against the value of the property and place it back on the market at a very viable sales price. This can be achieved as the costs of this form of recovery are modest compared to formal repossession.
Following a successful sale the rebated mortgage debt - that the bank is willing to accept - will be recovered by the bank and the debts relating to the property (Community Fees IBI and utilities) will be settled in full to ensure that the property is "clean" for a new purchaser.
This offers a clean break solution for the borrower and the bank as part of our solution requires the bank to give a Certificate of Discharge to the borrower confirming that there is no long term damage to their credit rating. This results from a discharge of the personal debt for the mortgage and the security offered by the property.
We have extensive bank connections at very senior levels and I’d counsel anyone who is in default to consider whether this offers them a more attractive solution. Please remember that a Spanish mortgage is not a “no recourse” product and in simply walking away from the debt you will not leave it behind. For appropriate cases a more structured solution is feasible and should be considered as a viable alternative.
Regards,
Mark
Thread:
Dacion en Pago
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