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Finance providers

What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?

In general, real estate financing is typically provided by credit entities, which can be sub-divided into commercial banks and savings banks, credit cooperatives and the Official Credit Entity. All credit entities must meet the requirements of the Organisation, Supervision and Solvency of Credit Entities Law (10/2014) in order to provide financing. There are also credit financing establishments which cannot accept deposits from the public and are regulated by the Promotion of Company Financing Law (5/2015).

Financing structures

What are the most common structures used to secure real estate financing and how are these security interests perfected?

In the context of a standard real estate transaction, nearly all financing providers will request a mortgage as the main security. Under Spanish law, a mortgage must be granted by means of a notarial public deed and must be registered at the Property Registry in order to be valid. Additional common securities include pledges over the debtor’s assets (eg, bank accounts, receivables, shares) and additional bank guarantees, which must also be granted by means of a public notarial deed.

What covenants are typically made in financing agreements?

The loan to value covenant is part of almost every real estate financing. Further common covenants include the interest coverage ratio and the debt service coverage ratio.

Enforcement of security

How are security interests enforced in the event of default?

Security interests are enforced by means of foreclosure, which includes claims for both the mortgage principal and interest.

The procedure may vary depending on whether the secured property is the debtor’s main residence.

What is the typical timeframe for the enforcement of security?

The average length of an enforcement procedure, from commencement to eviction, is 12 to 18 months. However, this period may vary significantly, depending on which court is competent to hear the case (ie, the region in which the property is located).

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