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Dacion en Pago : Handing Your Property Back to the Bank

Dacion en Pago : Handing Your Property Back to the Bank

In these times of falling property prices and increasing rates of unemployment, a common question being asked on many expat forum is the subject of handing the keys back to the bank and walking away from a property that you are unable to finance and unable to sell.

For obvious reasons, most Banks remain tight-lipped on this ‘last resort’ and this often leads many people who find themselves in this situation making rash or ill-advised decisions.

We asked Campbell Ferguson F.R.I.C.S. from Survey Spain for his opinion and advice on the whole subject of ‘Dacion en Pago’ – Handing your keys back to the Bank :

” The banks are reluctant to take back any property as they have so many already, which is one of the reasons why they have very poor liquidity at present. For that reason they can sometimes be quite willing to negotiate. It might even be worthwhile delaying a mortgage payment just to show that you are serious, but beware that doesn't move you into their 'bad boys' book. Have you asked if the loan can be extended? If you have a loan of 25 years and can extend that to 35 years that can reduce the monthly payments considerably.

Also, if you have a mortgage that was arranged a while ago it might be that more current mortgage product available from the same bank could have better terms. Part of the monthly payment may also be associated insurance premiums. See if you can get these reduced in some way.

This really isn't a good time to be having a property revalued for handing back to the bank as, hopefully, we must now be close to the bottom of the market. I still have concerns that the banks are going to be coming under increasing cash flow and regulatory pressure to get rid of some of their stock, which they will only be able to do by discounting significantly. If you can hang on for a few years, assuming the property is in a reasonable location, then you should see an increase in your investment.

In the majority of circumstances you will find that in your mortgage document there will mention that the loan you took out was of a certain value, but that if the property is put to auction considerable expenses and penalties will be added and so your debt will be at a much higher level, sometimes almost double the original. It may be by handing back the property to the bank that you will trigger this clause and find that your debt is so much more. Remember that it is effectively a personal debt that you have with the bank secured by the property. If you or the bank sells the property and the proceeds do not pay off the whole debt, then you will still be liable for the remainder. Undoubtedly, it is much better to hold onto the property if you can or to dispose of the property yourself even if that is below the level of mortgage that you have. If you can prove to the bank that without the property you can repay the remainder of the loan over a reasonable period, then they may agree to it being sold without the whole mortgage loan being repaid.

If you do decide to continue with the decision to hand the property back and the bank is reluctant to take it, they are legally obliged to do so under the ‘Dacion en Pago’ law. “

Article supplied by Campbell D. Ferguson, FRICS, Survey Spain SL Click here for further information and contact details.

Comment on this Article

Campbell, thanks very much for getting back so soon, it seems like there are two different points of view on this subject . You are right and I agree handing back keys is not the solution but then the banks need to think about their wreckless over-borrowing , there has to be some middle ground for the now struggling borrower . Regards
Mr Hill - Mon 9th Apr 2012
Mr Hill. I've read responses from accountants, etc., that state the banks are chasing to the UK, using European accepted Spanish judgements. These are then transferred to UK and they can seize your assets there, arrest wages, etc as if they were a UK lender. However, the Spanish Govt is aware of the distress that this causes and you should seek a formal Dacion en Pago arrangement, which I believe means that they accept the house as full and final payment and you can get on with your life. The banks aren't keen as they are awash with returned property and it means they have accepted a loss. I suspect they will check your worldwide financial situation and only permit that if there aren't assets elsewhere to cover the whole. debt. DO NOT just hand the keys and deeds over the counter and walk away. You need to meet and negotiate. The cost of an airfare to do that face to face will be less than the cost of not doing so. Alternatively, get a good solicitor here to act on your behalf.
Campbell D. Ferguson, Frics, Survey Spain - Mon 9th Apr 2012
Dear Sir..........I read in most articles that you would still be liable but is that really the case ? Its difficult enough getting through to these people and even getting a statement from them ! ....If I handed back keys and walked away have you heard of cases where they would actually come to the UK and take you to court, I have not heard of this happening so far , any inforamtion would be great . Thanks
Mr Hill - Mon 9th Apr 2012