In Spain, They Take Your Home But The Debt Stays With You Forever!

Posted By on October 28, 2010

So….The real question is how did personal liability mortgages ever become so common in Europe?  Why would anyone ever buy a house under such strenuous terms?  Inquiring minds want to know!

Published: October 27, 2010

MADRID — Manolo Marbán, 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.  That’s when he got swept up in Spain’s giddy real estate boom.

But Mr. Marbán does not own either anymore. The bank foreclosed on both properties last 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 Mr. Marbán 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,” Mr. Marbán 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 Mr. Marbán, 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. Now many Spaniards, no longer able to pay their mortgages see the fine print in the deals they agreed to years ago, it may folow them around forever!

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 Mr. Marbán, facing a mountain of debt. Bankruptcy is not 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.”

An estimated 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.

And then there is the matter of guarantors. Bankers pressed many homeowners to find guarantors at the time they took out the mortgages or when they began to struggle to make payments. Mario Gozálvez, a truck driver, asked his 23-year-old daughter to act as a guarantor when he used the equity in his Barcelona apartment to buy a truck three years ago. At the time, she did not even have a job, and he thought of it as a silly formality. Now, she faces a lifetime of paying off his debts.

So….The real question is how did Personal liability mortgages ever become common in Europe?

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