Bank Repossession in Spain
ACQUISITION OF BANK-REPOSSESSED - PROPERTIES SPAIN
IMPORTANT NOTICE: The information that follows is intended as a guide only, and the author takes no responsibility for what is stated. In all cases interested parties should take independent legal advice on their own cognisance.b´´´´´´´´´´´´´bank repossession
Spanish banks and financial institutions have usually made available details of properties on which they have foreclosed to trusted contacts. Until now such lists were relatively short, but recently have for obvious reasons increased considerably in length. They are still not available to the general public and in some cases banks will also provide lists of properties that have not yet been repossessed but which are in danger of being so. So read on......b
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There are usually two lists current at any one time. The first of these refers to properties on which the banks have already foreclosed and these are known as Adjudicaciones Bancarios ('ABs') . The bank or banks in question will already have been adjudicated the property by the court as the principal creditor/s. Properties featured on the AB lists are available for immediate purchase direct from the banks, and payment terms have to be agreed individually. In some cases, providing the buyer has a good credit record, the bank will grant credit facilities for the purchase.
However it must be made clear that these AB properties, while being below market value often carry a small premium over cost since the banks have understandably marked up the price over and above what was owed originally for the work they have been involved in plus their legal and other costs. Having said this, scrutiny of the lists will usually throw up some very interesting bargains.
The real bargains are to be found in the second list, pre-repossession properties, the Cesiones de Credito ('CCs') . These properties are the subject of a loan or mortgage from the bank (they may also have been put up as guarantees by the owners for almost any type of financial transaction) and payments are overdue. In some cases only one payment may not have been made, but under Spanish law this is grounds enough to ask the court to start the repossession process. In most cases the bank will not have done so as it has thousands of properties in this situation, and will more likely wait until several more monthly payments have been missed. However the bank is prepared to cede the debt to a third party and anyone can buy this from the bank by paying what is outstanding.
It must be understood that the lists are in many cases deficient in detail and the banks responsible for their preparation will not provide additional information simply because, a) it does not figure on their database, or b) it would be guilty of revealing data that is protected by privacy laws. It would be much more practical if complete details were provided, but this is simply not the case and it must be appreciated that this is not a property transaction - rather a financial one. The investor is acquiring a property for a price that is substantially discounted from the valuation figure and the difference between these two is the potential profit. Nevertheless this is not a business for the faint-hearted or those of an inflexible northern European mentality. At times it can be frustrating and anyone wanting a quiet life should perhaps stick to the Adjudicaciones Bancarias list and forget about the Cesiones de Credito products.
Additionally investors would be best advised to concentrate their attention on the properties where the address is clearly shown and therefore making the property easy to locate. Although, having said this, there will obviously be more investors taking the easy option than those going for a property for which the address is unknown until the bank opens the relevant file.
Looking at the Adjudicaciones Bancarias listings, the buyer of the debt has two main options. He can request the court to foreclose on the debt; or he can attempt to renegotiate the loan with the owner of the property on terms that may be more likely to be met. Experience has shown that the second option is usually unviable, as, if a debtor has missed, say, four payments, it is improbable that he has sufficient money to renegotiate the loan unless it is on terms that are unlikely to be of interest to the new lender. The procedure for the repossession process is described below.
Once the court has been asked to initiate proceedings (the bank may already have asked them to do this), it will set a date for the first auction at some future date. It is difficult to predict this time scale as some courts have more work than others, and this is what decides the delay between initiating the proceedings and the date of the auction.
Once the buyer of the bank debt has become the preferential creditor all interest accruing from the date he has taken over the loan is for his benefit. Banks usually charge intereses de demora (interest for delay) when a payments has been missed by the debtor, of between 12% and 18%, and these accrue to the new owner of the debt.
The owner of the property will be served papers by the court advising him that the property will be put up for public auction on a certain date unless overdue payments are met. Whereas previously he could have negotiated directly with the bank, from this point on he has to deal with the new owner of the debt. In the vast majority of cases the owner does not react to the court demands and the property comes up for judicial auction.
This will not be an auction as most northern Europeans will envisage one. The only people likely to be present are the court secretary who conducts the 'auction' and the owner of the debt and/or his legal representative.
In law there is allowance for three judicial auctions: the first one has a reserve price of the debt amount, the second that sum less a third, and the last auction is at whatever the property will fetch. (It is at this last auction that the subasteros ('the ring') operate, as they are not interested in paying anything but a giveaway price for properties and are certainly not about to pay delayed interest charges and accumulated costs).
It would not be correct to say that the owner of the debt is always adjudicated the property at the first auction. If there is no other bidder this will automatically be the case, but a situation could arise whereby another bidder appears who will have a specific reason for wanting to buy the property or to stop someone else buying it. This could be the debtor, who at the very last moment has managed to obtain the funds he owes plus interest charges and court costs, but could also be the owner of an adjoining property who wishes to acquire the property being auctioned so he can extend his own property. In such a case the owner of the debt can either just walk away after pocketing his original investment plus interest charges of 12% to 18% that have accrued to him from the time he acquired the debt to the date of the auction, (these will be all included in the reserve price set for the property to be sold at), or he may wish to bid against anyone else to a level that only he can decide, depending on his views as to the economic viability of selling on the property at a profit at some future date.
Nevertheless experience has shown that the owner of the debt is almost certain of being adjudicated the property at the first judicial auction. He then has 14 days in which to register the property in his name via a new escritura (title deed) This carries notary's costs and taxes, and can be avoided if the new owner already has a buyer lined up and he can conclude a private agreement with him within the 14 days. There is then no liability for the ex-owner to pay registration costs since these will be for the account of the buyer.
Some of the properties in these CC listings have not yet been repossessed by the bank, and the debtor will have been given final notice to pay within a specified period or have the property repossessed. Therefore, with the blessing of the bank, he is authorised to negotiate the sale for a limited time. Admittedly this happens rarely with individual properties and is more likely to be the case with multi-properties such as urbanisations, hotels, large building sites, etc.
Leaving these to one side, even though they can provide very interesting opportunities, it is necessary to describe the procedure for taking over a property on which the bank is owed money but which as not yet gone to judicial auction. This is as follows: The investor advises that he wishes to reserve a property pending carrying out of due diligence.
- A meeting with the law firm representing the banks' agents takes place at which the investor enters into an agreement by which he pays a 10% deposit to be held in the law firm's clients' account. In return for this the property/ies in question is/are reserved exclusively for the investor for a limited period.
- The law firm makes an application to the bank to release the file. The branch to which the application is made (which will be on the one that made the loan in the first place), applies to the regional head office for the file.
- Between three and 15 days later the branch will communicate that it is holding the file. The investor, and of course his legal representative, is then at liberty to visit the bank and view the file. The law for the protection of private data forbids the file to be removed from the bank, but notes can be made; (in many cases the file can weigh several kilos).
- The investor, having reviewed the file, must inform the law firm within a reasonable period, usually 7-10 days, if he wishes to proceed with the transaction, in which case the agreement is made between the bank and the investor to take over the debt.
- In the event that the investor decides not to proceed, the 10% deposit paid will be returned to him less 10% that is retained to cover the costs of the law office and the bank to that point. This is not 'lost' money as 100% of the 10% can be applied to the reservation of a further property or properties, obviously with the adequate adjustment for the difference in value between the first and subsequent reservations.
Note : This retention may appear irrational, but prior to its introduction 'investors' were requesting 20 or 30 files at a time although they had the intention of only acquiring one property. Bearing in mind that the files have to be physically transported to the branch in question from the regional office and a copy of the current registration certificate is provided, the retention is a needed measure to discourage small investors who previously had only served to slow down the process to the detriment of serious investors.)
From this point on, the procedures described in the foregoing apply.