Unsure as to whether to safeguard banks' funds or allow citizens to offer their homes in payment for the cancellation of mortgage debts, and unable to come down definitively on either side, the government has enacted Royal Decree-Law 8/2011, entitled "Measures to Support Mortgage Debtors".
Until now, in order to bid in a foreclosure procedure – whether on a residential property or otherwise – a deposit of 30% of the starting price (ie, the value of the appraisal minus the value of charges, encumbrances and pre-emptive rights) had to be paid into court beforehand. If no one bid at least 70% of the starting price, the debtor was allowed to appoint someone who would bid either 70% of the appraisal value or the total debt value. If the debtor failed to do so within a certain timeframe, the bank could then request to be granted the property, either for 70% of the starting price or for the amount owed, in cases where the debt exceeded the highest bid. In the event that no one turned up to bid, the bank could decide to keep the property for either 50% of the appraisal value or the total debt value.
The royal decree-law uses the 'magic' 10% figure, which on the one hand reduces the deposit required to bid to 20% of the starting price (ie, 10% less), and on the other hand compels the bank, if it decides to keep the property, to do so at 60% of its appraisal value (ie, 10% more). However, if that 60% does not cancel the debt, then the outstanding amount continues to be payable on demand, which means that things are much the same as before.
Also, in those cases where the debtor's main residence is involved, the royal decree-law has raised the minimum amount of household earnings below which foreclosure is forbidden by law by 50% of the national minimum wage (ie, up to 150%), and by a further 30% per dependent family member without earnings.
While offering property in payment will not always clear debts altogether, it will nevertheless now cost banks 10% more to acquire such properties through foreclosure. Banks will thus find it hard to seize the wages of debtors who belong to the so-called 'thousand-euro' generation in cases where they decide to keep their main residence.
For further information on this topic please contact José Antonio Pérez Breva at Garrigues by telephone (+34 93 253 3700), fax (+34 93 253 3750) or email ([email protected]).