Lawmakers Mulling Changes to Spanish Mortgages

 

Spain has rejected a proposal to modify a ruling on mortgage foreclosures, which could have benefit an estimated 300,000 property owners who have lost their homes following the country's economic downturn.

One minority political party has even requested a change in the law to home owners struggling to pay their mortgage to be able to to walk away from their property by handing the keys back to the lender. This suggestion, along with others, was rejected.

Spanish law states that if a repossessed property is sold for a lesser sum than the outstanding mortgage, the bank can claim the difference from the borrower, and banks can pursue a claim for the money from the previous owner.

The number of repossessed homes reached an estimated 300,000 following the crash of the property market, and took a grip as unemployment surged to 20.3% - the highest in the EU. The hangover from the boom years left Spanish banks with 315.8 billion euros in bad debts associated with real estate by late 2010.

The government has formed a committee which has been given 6 months to consider Spain's current mortgage rules and whether the law as it stands allows for abusive practices.

If the proposals to allow homeowners to hand their keys back to the lender is upheld, the added risks involved would undoubtedly result in a higher cost of lending, which would ultimately be passed on to the borrower.