In an earlier blog you can see my take upon the Spanish procedure by which it can be possible to hand back a house or flat to the Bank mortgage lender. It is very disappointing when the dream of a home or second home in the sun turns sour, but disappointment is one thing and financial ruin is quite another.
The procedure of Dacion en pago has been a godsend to many British owners of property in Spain. Plunging values of property, coupled with years of recession and perhaps the loss of jobs, have meant that the mortgage commitments on many investments in the sun have become unaffordable millstones. The ability by agreement with the Bank simply to hand the keys back and walk away, is a financial release which is often not available in other countries.
However the drawback until last year was that the Banks would never agree to accept a Dacion en pago if the mortgage debt exceeded the property value – negative equity. Although not enshrined in any Law, it was widely believed by borrowers and lenders alike in Spain, that the procedure was somehow not allowed, in the case of negative equity.
There is now good and bad news since 2012. In a voluntary code of practice published by the Spanish Government and accepted by 95pc of the institutional lenders (who having accepted it are now bound by it) Dacion is now compulsory if the code terms are met. Also, negative equity is no longer a bar to Dacion. That is the good news.
The bad news is that the code terms in effect exclude persons of Non-Spanish domicile since one term included is that the property in question must be the only borrowers only home.
So the new regime means that a UK resident will be unable to demand Dacion as of right. However, as before, it can still be requested and there is no longer any rule that negative equity will operate as an absolute non-starter. As before, I am indebted to Raymundo Larrain Nesbitt for the source material for this blog.