 Dation in payment
or lifelong insolvency?
The dation in payment is the legal term for which is acknowledged the situation in which the debtor of a mortgage passes over the property to the bank in exchange that the cancellation of the mortgage is processed.
In accordance with the Spanish Legislation, the realization of the above depends unilaterally on the bank.
And so, if the bank does not accept his proposal, the bank would initiate the required judicial proceeding in order to obtain possession of the property.
At the beginning the end result could appear to be the same both in one scenario or the other, the bank obtains possession of the property.
In any case, the legal consequences are very different due to the fact that at the end of the judicial proceeding, by Law it is understood that the bank will only cover from the debt outstanding, 50 % of the value of the property.
The rest of the debt would be pending payment to the bank for life.
This makes it almost impossible for the debtor to purchase a property in the future or remake their status.
In any case, nothing will prevent that the bank can make a transaction in the future with the sale of this property that they have been left.
The most debated question at these times would be the modification of the article 671 of the Civil Indictment Law that establishes that, if the auction is deserted, without a bidder, the creditor of the loan can adjudicate themselves the asset for 50% of its valuation without harming the payment of the rest of the debt pending.
There are many voices which are being raised during the last months in Spain in order to produce a change in the legislation that allows to settle and pay the debt with the passing over of the property to the bank.
This matter is the object of controversy at this time and is the subject of discussions between politicians, judges, banks, etc.
According to the General Council of Judicial Power, in 2008 there were initiated 58.686 mortgage executions, nearly 115.000 new executions in 2009 and approximately another 181.000 in 2010. This means, more than 350.000 mortgage executions and seizures in three years.
The Spanish legislative panorama is far from that existing in other European countries such as England, France, Germany and Portugal.
In France, the Neiertz Law from 1989 authorises through the legal route the imposition of conditions of negotiation between bank branches and individuals. And following on from this, in 2003, the Law known as the Law of the second opportunity foresees the legal cancelation of the debts of actual persons through the liquidation of patrimony.
In England, on their part, the dation in payment is regulated, this is, the possibility that the mortgaged can be freed of their debt passing over the property in question.
In Germany and Portugal, at last, contemplates a negotiation process that can drive to the partial cancelation of the debt when dealing with debtors of good faith. |
