MADRID – Manolo Marban, 59, is still living in his house in Toledo and going to work in the small, pink-and-aqua pet grooming shop he bought here in 2006, when he got swept up in Spain’s giddy real estate boom.
But Marban does not own either anymore. The bank foreclosed on both properties in April, and he is waiting for the courts to issue the eviction notices. For most Americans facing foreclosure, that is the end of it. But for Marban and thousands of others here, it is just the beginning of their troubles. When the gavel falls on his case, he will still owe the bank more than $140,000.
“I will be working for the bank for the rest of my life,” Marban said recently, tears welling in his eyes. “I will never own anything – not even a car.”
The real estate and banking excesses in Spain were a lot like those in the United States. Construction boomed, prices rose at an astonishing pace and banks gave out loans just as fast, often to customers like Marban, who used the equity in his house to finance a mortgage for his shop. But those days are over. Spain now has the highest unemployment rate in the euro zone – 20 percent – and real estate prices are dropping. For many Spaniards, no longer able to pay their mortgages, the fine print in the deals they agreed to years ago is catching up with them.
Not only are Spanish mortgage holders personally liable for the full amount of the loan, but throw in penalty interest charges and tens of thousands of dollars in court fees and people can end up, like Marban, facing a mountain of debt. Bankruptcy isn’t the answer, either. Mortgage debt is specifically excluded here.
“Effectively, you can never get rid of this debt,” said Ada Colau, a human rights lawyer who works for Plataforma, a new advocacy group formed both to give legal advice to homeowners and to push for reform of the country’s foreclosure laws. “Other countries in the European Union also have personal debt mortgages, but you can go to the courts and get relief. Not in Spain.”
Several opposition parties in parliament have been pressing for amendments to the country’s foreclosure laws, including letting mortgage defaulters settle their debts with the bank by turning over the property. But the government of Jose Luis Rodriguez Zapatero has opposed such a major change in lending practices. Government officials say Spain’s system of personal guarantees saved its banks from the turmoil seen in the United States.
1.4 million Spaniards are facing potential foreclosure proceedings, according to Spain’s consumer protection association, known as the Adicae. Recent figures from the courts show that the numbers are rising fast. In 2007, there were just 26,000 foreclosures. Last year, there were more than 93,000. Early indications suggest that they will be higher again in 2010.
A recent Standard & Poor’s report found that 8 percent of Spain’s housing is now worth less than the value of the mortgage; with prices continuing to fall, experts believe, that figure could rise to 20 percent.
Advocates say that Spain’s foreclosure procedures tilt far too much in favour of the banks, virtually guaranteeing the mortgage defaulters will end up owing large amounts after they lose their homes. Banks have the right to auction houses in foreclosure and, if no buyers appear, as is often the case these days, the bank can take ownership of the house for 50 percent of its value, according to the estimate either at the time of purchase, or at the current time, depending on what is specified in the mortgage. The banks then have 15 years to go after the homeowner. And if the banks initiate proceedings at any point, the clock starts ticking again, experts say. In the meantime, the bank can charge interest on that debt.
Montse Andres Sabate, a lawyer with Ausbanc, a consumer association that specializes in banking services, says that the banks usually charge 5 percent or 6 percent, but sometimes much more.
“We’ve seen 18 or even 19 percent,” Andres said.
Early in the crisis, experts say, banks were lenient with immigrants who had no assets and accepted the property as payment for the loan. But some advocates say they are tougher now. Under the law, the banks have the right to collect a percentage of a debtor’s income if it is above $835 a month.
Santos Gonzalez Sanchez, the chairman of the Spanish Mortgage Association, says it is the bank’s duty to try to collect.
“This helps to explain why our financial entities have not gone bankrupt,” he said. Personal liability mortgages are common in Europe. But advocates here say that aspects of Spain’s procedures – how quickly banks can foreclose, the interest rates they can charge and the repayment schedules they can demand – are particularly severe. In October, even Zapatero’s party joined in voting for a parliamentary motion to slow foreclosure proceedings.
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