Repossession of mortgaged property in Spain

Ecuadorian president demands fair treatment for its nationals in Spain

The Ecuadorian president, Rafael Correa, has asked the Bank of Spain to look into the situation of thousands of its nationals living in Spain who are unable to meet their mortgage repayments and who now face a ‘dramatic situation’.

In March this year the Ecuadorian ambassador in Spain sent a letter to the governor of the Bank of Spain asking for ‘socially just solutions’ from Spanish financial institutions.

In Ecuador if a mortgage holder cannot repay the mortgage the bank can only repossess the property in question. However, in Spain the bank has the power to repossess the property and to recover the whole mortgage plus the interest owed by the mortgage holder. Moreover, following the fall in prices compared to a few years ago many people who are unable to repay their mortgage are faced with an impossible situation given that the new value of the property is nearly always lower than the price at which it was bought.

In the letter sent to the governor of the bank of Spain the Ecuadorian ambassador referred to the fact that in many cases the price of property had been overvalued and also that many property valuers worked for the banks . The letter also complained about the fact that in some cases banks had offered not only 100% mortgages but also included the price of valuation, lawyers fees and tax as well as refurbishment despite the fact that they were aware of the risks faced by its clients.

The ambassador also said that Spanish banks had been ‘lax in their system of guarantees’ and had ignored the fact that many people who were given mortgages had low incomes and accused banks of avoiding the Bank of Spain’s own controls.

Lastly he called for Spanish banks to follow the system following in the US – when mortgage repayments cannot be met the bank repossesses the property and the debt owed to the bank is automatically cancelled.

The Ecuadorian ambassador was adamant that he did not want special treatment for Ecuadorian nationals but that he did want ‘measures which would help solve the mortgage crisis’.
Two months after the letter was sent the Ecuadorian president visited Spain and met with Ecuadorian nationals in Madrid University. He found that one of the most pressing issues for many people was the problem surrounding mortgages in Spain.

In the meeting Correa was shocked by possibility of Spanish banks trying to recover their debts by seizing property in Ecuador. He said that this would be impossible and that if it was possible then he would ‘never allow it to happen’. He was quoted as saying that it was ‘outrageous’.

The chairman of the Spanish Mortgage Association, Santos González, said that the internationalization of debts was possible if accepted by a judge in the country in question although he added that this was a ‘theoretical assumption’.

Last July the Ecuadorian bank regulator, Gloria Sabando, visited the Bank of Spain to discuss the problems faced by many Ecuadorians in Spain who were now unable to repay their mortgages.