Friday, October 7, 2011

Spanish Mortgage

Even capitalist countries tend to reject the practice of systematic usury.  If bankers don’t, governments usually do by imposing limits to protect (at least somewhat) consumers.  Spain, however, as Catholic as it might be, has been comfortable with usuary embedded into its system of mortgages.  At least it did until today. 

Today Spain, or at least Catalunya, made a pass at leaving its outdated and usurious practice concerning mortgages behind and joining the enlightened world.  Today a court tribunal in Girona ruled that the owner of an apartment that was repossessed and sold at auction by the bank, now owes the bank nothing.  This is something new here.

You might think that of course the former owes nothing once his property is repossessed.  But that hasn’t been so here in Spain.  Here, when you obtain a mortgage, you are not only using the property as collateral, your total personal worth is also part of it.  What had happened with this owner, and what happens with every property owner in Spain who has a mortgage and his property is repossessed by the bank, is that the owner still owed the bank the money.  The amount the property sold for at auction was deducted from the original value at the time of purchase and the property owner owed the remainder.  In this case, it was over 100,000 euros, and the bank had taken steps to put a lien on the owner’s salary.

This is the first court decision giving the right to the property owner who loses his property to lose no more than the actual property that is mortgaged.  Until today, in the case of repossession during a period of time when prices have fallen, the owner lost his home and still owed.  There was no way out of this forced and unfair debt.  Usury is nothing compared to this.  For the average person, it meant being left without a home and owing money forever for the home that the bank now owned and perhaps had resold.  It has made me very worried about my own situation, owning a house I can’t afford to keep and not being able to sell it either.

I understand that this decision, which took place in Catalunya, will stand as a precedent for future court decisions and the application (or change) of the law in all of Spain.

Well good.  One more small step forward.  Perhaps next, someone will take a look at the local governments who take private property, paying little or nothing for it to the owners, and turn it over to private developers.  If the First World contains those countries who embrace capitalism and the Second World those who subscribe to communism, Spain seems to still sit firmly in the Third World.

This afternoon, after writing the above post, I went to a party.  Most of the people there were British plus one Dutch guy and one American couple.  From my English friend Dorothy I learned that mortgages work the same way in England.  If your house is repossessed, you still owe the full amount of the loan, which can be reduced by the amount that the bank sells it for.  I couldn’t believe it.  England allows such a barbaric way of doing mortgages?  Then from across the table, Hans told me it’s the same in The Netherlands.  What!  The Netherlands too?  Yes, said Hans.  In fact, he said, it is the same all over Europe.

I follow the news here in Catalunya regularly.  Ever since coming here, I’ve always made it a point to know and to try to understand what goes on around me.  But I never knew that about the rest of Europe.  My first thought was to rewrite the post now that I know that Spain isn’t the only country with kind of mortgage practice, but then I thought, no.  I’ll just leave it as I wrote it, and add this note at the end.  The people at the party all seemed to think that this was normal.  But from an American perspective, or at least from mine, it’s outrageous.  It’s interesting, though, to see how much one’s assumptions are based on the society from where one comes.  


  1. It's still happening here in the good old US of A. Homeowner can't pay the mortgage and defaults. Bank gets the house and finally sells it. Selling price is less than the original homeowner owed so original homeowner is stuck with the balance due on a house he no longer owns.

    Furthermore, original homeowner wasn't able to negotiate for the asking price so the bank was able to sell the house quick for a lot less than the original owner could have got - too bad, so sad, original owner is stuck with original price for a house someone else now "owns" and lives in.

  2. regarding Becky's California we have Deeds of trust rather than mortgages...and as Dvora mentioned, here, when a bank forecloses, the house is the security, and once it's sold, the debt is dissolved for the borrower. However, the IRS can tag you here for debt relief...that's the one thing people sometimes don't see coming.