Editor’s note: This article was first published in February 2011. This news is from that month. Spanish mortgage rules have since changed in part, for example through the 2012 Code of Good Practice, which allows handing over the home to settle the debt in some cases, and Law 1/2013.
One big difference between the US system and the Spanish system is that in Spain, if you can’t keep up with your mortgage and the bank repossesses your home, once the property goes to auction you still owe the difference between the price the bank sold your house for and the debt you had with the bank.
In the United States, the system is completely different. If a family can’t keep up with its mortgage, it goes to the bank and hands over the keys. The bank keeps the house and the former owner is square with the bank (they no longer owe it anything; the debt is settled). That was one of the reasons the global crisis started, or at least sped up. When Americans began to notice that they were paying for a property above its current market value, they simply stopped paying for it (they handed it back). This caused the banking system to collapse.
Now, in Spain, the first cases are appearing of banks taking their customers to court, and one judge in particular is ruling in favour of the homeowner, releasing them from any remaining debt once the bank repossesses the property.
BBVA has come up against a judge who has already sided with the former owner in one case, arguing that if the bank keeps the property, the former owner has no reason to go on owing part of the mortgage.
Unsurprisingly, the lawsuit and the ruling have set alarm bells ringing, and BBVA has asked for the ruling to be annulled, threatening to go to the Constitutional Court if necessary.
Experts in the field have been consulted, and they all agree that the law must be applied without taking moral values into account, so the ruling could indeed be annulled.
Nevertheless, a public debate has opened up that has even led the government itself to ask whether we should change this system, in which a family ends up on the street and in debt while the bank goes on collecting the value of the home, even though it may have lost value over time.
A growing movement is calling for the model to change so that, once you hand over your home, the debt is settled.
Further reading
- Abuses we should report but never do
- The tax agency will start seizing cats, dogs and other pets
- Banco Santander’s collaborating agents: living a lie
Featured image: advokatsmart.no, CC BY 2.0, via Wikimedia Commons.
