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When you can’t pay the Mortgage

- Updated: 08/10/2011
When you can’t pay the Mortgage

Despite what the scaremonger would have you believe , not everybody who may struggle from time to time to meet their mortgage repayments will fall victim to having their property repossessed - especially if your property is not in negative equity. The Bank will often reach an out-of-court-settlement with the owner signing over the ownership of the Property to the Bank by Public deed. The Bank then agrees not to pursue any of the debt any further in return for full ownership of the Property.

When you can not sell the property, and do not wish to proceed as above, the repossession procedure generally follows in 6 steps...

1) The borrower falls into arrears - The borrower fails to comply with the agreed mortgage repayments. A Higher rate of Interest ("interés de demora") is then applied to cover costs and penalties. The Bank should contact the borrower and offer to settle the matter out-of-court.

2) The technical default - This happens 90 days as from the first arrear. The matter is then passed onto the Bank’s debt collection department which will try one last time to recover the debt thereby resolving the situation. Many Banks are open to negotiate before the default because this has a knock on effect with their relationship and regulation with the Bank of Spain. Once You pass this point the wheels have set in motion at a much more inflexible level.

3) Foreclosure and notary intervention - Depending on the chances of a debt recovery, 2 to 3 weeks later. A registered letter is sent by a Notary Public, informing the owner that the repossession procedure is underway.

4) Repossession order - The court contacts the property owner to schedule a date for the trial. The value of the property in the repossession auction can be one suggested by the Land Registry but sometimes the Bank may apply for this to be updated – and this can often have a bearing on the Banks’ decision to continue in this vein if there are going to be a lot of associated costs for them.

5) The Court sets a date for the Public Auction – Usually around 6 to 12 months after the Technical default. The court will set the date of the auction. If no one bids for the property it remains in the Bank's possession. The Bank's object here is to recover the debts owed to them, however if the sale of the property does not cover these debts (Like in cases of negative equity) then the Bank is entitled to chase further Money - even if the defaulter has moved abroad. If there is a named guarantor on the original mortgage agreement then the Bank will chase their assets too . The property is then registered with the name of the new owner.

6) Eviction - In the unlikely event the owner is still in the property, after about 6 months, the new owner will be legally entitled to ask the police to help to forcibly evict. There are a few cases where this may not legally possible.

What to do if you cannot pay your Mortgage?

If you are struggling to keep up to your mortgage repayments, and unable to sell your property, talk to your lender as soon as possible to explain your situation. Banks start to take legal action in Spain after 3 Months of Arreas - even if you manage to come to an agreement with them, and the Bank will look upon you as a defaulter. You will still have to pay the outstanding debt aswell as all the legal expenses.

When you speak with the Bank you should ask about the possibility of extending the mortgage period, reducing the interest rate or changing to an interest-only mortgage until your situation changes. If you can not arrive at any satisfactory agreement then it is often best to voluntarily hand back the keys rather than incur any more costs, penalties & charges.


As soon as it looks like there could be a problem with meeting your Mortgage repayments talk to your Bank. They will be far more flexible and accommodating in changing your mortgage before you fall into arreas. Repossesion in Spain is a very serious matter and your assets in other countries can be taken to cover any debts and costs incurred.

Thankfully the number of repossession in Spain remains very low, and there are many flexible Mortgage Packages available to suit most borrowers.

However, anybody finding themselves in this situation should be aware of recent changes to Spanish law, which can be read by clicking the link Here.

Contributed by Raymundo Larraín Nesbitt - Lawbird Legal Services.

Comment on this Article

Can anyone tell me the process of repossession ? - Are you informed that your house has actually gone to auction and if it has been sold or not ?
Magel - Mon 3rd Sep 2012
John, it looks like the legality of your 'Private Agreement' with the 3rd party is the key here, but this matter overall seems quite complex and we would strongly recommend that you took the appropriate professional advice as quickly as possible - Raymundo Nesbitt from Lawbirds - the original author of this article - may be a good place to start.
Tumbit - Admin - Sun 13th Jun 2010
Hi, You mention under paragraph (6) 'Eviction', there are a few cases where this may not be legally possible. Can you explain what types of cases may not be legally possible. I signed over our property at the Notary to a 3rd party several months ago. I also have a private agreement with him which says we can remain in the house for a period of 6 months. During this time the other party has not paid the 7% tax duty nor any mortgage payments. He agreed responsibility for the existing mortgage and payments until conclusion at the signing in the Notary. The bank has already started proceedings and it looks as though the house will be put for auction. Our Lawyer told us to remain in the house as we are still owed some money for various things. Can the Bank force us out? - the amount owed to us by the 3rd party is considerable and I suppose remaining in the house as opposed to paying rent until we buy another property is one way of recovering part of the debt.
John - Sun 13th Jun 2010