The issue of whether credit institutions should take on any liability for the mortgages they give to finance the purchase of a home has recently come to the fore. Of particular concern is whether they should agree to not receive more than the value at which they appraised the dwelling or take the dwelling for that value.

Article 140 of the Mortgage Law is arguably the most under-used article in Spanish law. It provides that the mortgage deed may stipulate that the mortgage "is only made enforceable on the mortgaged assets", in which case the debtor may not be held liable over and above the value of the mortgaged assets.

However, a clause stipulated between a credit institution and a private party in an unfavorable position is all very well in theory, but not in practice. The issue is brought to bear today more in terms of fairness and concerns over the financial crisis and the role of banks than in legal terms - Article 671 of the Civil Procedure Law allows credit institutions to take the dwelling at 50% of its appraisal value in an auction without any bidders.

The lack of political consensus on amending a stipulated clause of the Mortgage Law is well known, and when the judiciary did take a step in this direction, it arguably showed too much zeal. Decision 111/2010 of Panel Two of the Provincial Appellate Court of Navarra used the initial appraisal value to argue that the person who appraised the dwelling at this price could not now claim that the dwelling did not cover the debt, as a way to make up for the failure to use Article 140 of the Mortgage Law with the acts of the financing party.

Precedents are few and their enforceability doubtful when statutory law prevails over case law, and the courts are not allowed to make leaps of faith. However, a proposal for a law has been submitted by a multi-party parliamentary group according to which, in an auction with bids that fail to cover the debt or in auctions without any bidders, the debtor can discharge the debt with the building where the situation was "occasioned by causes beyond his control and the appraisal value of the dwelling admitted by the foreclosing creditor when granting the mortgage is higher than the outstanding debt".

Although the debate has now been served up, it is still a long way from being ready for judgment.

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]).