Negative Equity Property Debt

In the aftermath of the property bubble, the subsequent economic crash and more recently, the COVID-19 crisis, negative equity has become commonplace among property owners in Spain.

Thousands of foreigners who bought at the height of the boom with high loan-to-value mortgages now find themselves with a property worth less than their mortgage debt. 

Getting out of this situation presents a challenge, particularly if your financial circumstances have changed since you took on the mortgage.

Unsurprisingly, homeowners facing this scenario often refer to themselves as ‘mortgage prisoners’ and believe there’s no way out of their predicament. 

However, with the help of Costa Luz Lawyers, your problem with negative equity property debt in Spain will find a solution.

At the end of the negotiations we carry out on your behalf, you will find yourself completely free of mortgage debt and no longer face the risk of your mortgage lender chasing you for assets you own anywhere in the world.

Contact us now for free advice.

What is negative property equity? 

Negative equity is the term used to describe the situation when your mortgage debt is higher than the market value of your house.  For example, your property in Spain might have a market value of €120,000, but the amount owing on your mortgage loan is €150,000. The difference between the two sums is -€30,000, your negative equity. 

Does negative equity only include the mortgage loan? 

When calculating your mortgage debt, you need to include: 

• The amount you owe on the mortgage (if your mortgage is interest-only, you still owe the entire amount you originally borrowed).
• Any missed payments. 
• Penalty interest on these payments (limited by law to a maximum of 3% more than typical interest rates). 
• Legal fees if the bank has initiated procedures against you for non-payment. 

Why is there so much negative equity property debt in Spain? 

Prior to late 2007, Spain experienced an unprecedented property boom with demand outstripping supply, particularly in areas popular with tourists and second homeowners. In most parts of the country, prices rose to their highest ever.

In tandem with this, banks approved high loan-to-value mortgages (up to 90% in many cases) with little regard for affordability or the applicant’s financial circumstances. 

When the property market crashed (between 2008 and 2012), prices plummeted and in some cases, fell to less than half their value. As a result, thousands of homeowners found themselves with loans that were worth far more than the property.

While the Spanish property market has recovered considerably and values have risen, property prices are still below their pre-crisis peak in many parts of Spain. 

In addition, many homeowners took out interest-only mortgage loans – usually valid for 5 to 10 years – and as a result, have paid off little capital. Their mortgage debt has therefore not changed since they took out the loan. 

Will my property always be negative equity?

This depends, of course, on market conditions. The general underlying tendency for property prices is always up, but there is no guarantee that prices for Spanish property will return to their pre-crisis maximums in the short or medium-term. 

However, a law passed in 2013 requires banks to apply a minimum value to properties in the repossession process. 

Are Spanish banks offering more favourable rates and conditions since COVID-19?

In a word, yes.

Many Spanish banks are offering property owners the option to change mortgages to ones with more favourable conditions. For example, to ones that reflect today’s interest rates, around 1%.

What can I do if I have negative equity?

Your first step is to get in touch with Costa Luz Lawyers.

We’re here to help you find a solution to your negative equity that means you no longer have to worry about your property debt in Spain.  

There are several options open to you and most involve your mortgage lender/bank. These options require careful negotiation to ensure you obtain the best solution to your negative equity. We believe that it’s particularly important to ensure that the solution solves solved your problem completely so that you can stop worrying about negative equity. 

Can I sell a property with negative equity?

In theory, you can, but in practice, you would find it very difficult to find a buyer prepared to buy a property with a higher mortgage debt than its value. And in any case, your mortgage lender would still pursue you for the outstanding debt on your loan. 

An alternative solution is for Costa Luz Lawyers to negotiate a sale to the bank on your behalf.

This process is known as a compraventa con quita and advantageous to both parties – you cancel your mortgage debt (we will ensure complete cancellation) and the bank becomes the owner of the property without incurring repossession expenses.

You can find out more about selling with negative equity here.

Can a Spanish bank still pursue me for mortgage debt caused by negative equity even if I’m no longer the legal owner of the property?

Yes, because under Spanish law a mortgage debt is personal and you as an individual are liable for the entire loan. If you sell your property for less than your mortgage debt, the bank is entitled to put a charge on your other assets to cover the outstanding amount.

For example, if you have a mortgage loan of €200,000 and sell your property for €180,000, you still owe the bank €20,000. Spanish banks can (and do) put charges on other assets you own and these may include your home. 

When Costa Luz Lawyers negotiates with a bank on a client’s behalf, we always ensure that the final agreement includes the complete cancellation (write-off) of the mortgage debt.

This guarantees that the bank cannot go after any of your other assets in Spain or elsewhere. 

What happens if I’m added to a bad debtor’s register?

We haven’t seen this happen to any of our clients. In any case, that registration would be illegal as what you are doing is paying the property’s debt. You cannot be included in any debt registry (also known as the Fichero de Morosos), less even if the Bank has not gone through a mortgage repossession process.

In that unlikely event, we would defend the de-registration and payment of corresponding compensation. More information on the incorrect addition to a bad debtor’s list here.

What if I already defaulted and the Bank placed a charge on my UK mortgage?

We’d defend you in this situation. In many cases, proceedings followed by Banks to set a charge on your UK property are illegal.

What if I have other debts ( Council Tax, Community of owners) attached to the property?

Depending on the level of debt, we will be able to negotiate that with the Bank, in the worst-case scenario, you will have to pay them. We can reach a payment agreement with these creditors.

Do I need to go to Spain to do that?

No, you do not. Everything can be done through power of attorney.

Have you achieved results in the past?

Yes, we can say that 100% of clients who came to us for mortgage settlement stopped paying their mortgage repayments after formally offering the property back to the Bank as payment of the debt with no further consequences.

What if I have a tenant or a prospective buyer for the property?

Both things are positive for the Bank as they want an active asset instead of a dormant/ negative one.

How long does the whole process usually take?

On average, it takes from six months to 2-3 years depending on more or less quick management by the Bank, BUT you stop paying your mortgage repayment on day one.

How can Costaluz Lawyers help me?

We can help you with any problems associated with negative equity property debt in Spain and ensure a happy ending.

We have helped dozens of clients find satisfactory solutions and put an end to their worries about negative equity. 

We are pioneers in Spain in fighting for property owners’ rights and have a proven track record in negotiating satisfactory agreements with banks. We know how they work and our extensive experience ensures our clients achieve the best possible outcome. 

How much do you charge?

Our fees for finding a definitive solution to your problems with negative equity on your Spanish property are reasonable and in any case, quickly recovered because once we act on your behalf you no longer have to make mortgage repayments. Plus the peace of mind our work on your behalf provides is priceless! 

Get in touch for the ideal solution to your negative equity problem in Spain.

Negative equity debt case study

A real example of how Costaluz Lawyers can help relieve negative equity debt:

The initial mortgage debt

In 2007 at the height of the last property cycle, our client wanted to buy a property in Spain for €224,770. He applied for a mortgage loan from a Spanish bank, which was approved for €204,000. The loan accounted for more than 90% of the property price.

The mortgage debt in 2022

In 2022, after 15 years of mortgage repayments, our client had €148,112.69 outstanding on his own. However, in 15 years, the property market crashed and is still in recovery mode.

As a result, the market value of our client’s property was around €100,000, less than half its initial price and well below the outstanding loan capital. Our client could therefore not sell the property to cancel his mortgage without paying over €48,000 in additional funds.

Our action and the result

The client contacted our team in early 2022 to find out how we could help him out of an impossible financial situation. We contacted the bank on his behalf and started negotiations to allow him to hand back the property as full payment of his mortgage debt.

We have years of experience in dealing with banks and, thanks to our negotiation skills, our client’s bank agreed that he could hand back the keys to the property and free himself entirely of the loan. In essence, it’s the equivalent of selling the property for €148,112.69.

Our client has given back the property to the bank and now lives free of this negative equity debt thanks to excellent negotiation by independent lawyers at Costaluz Lawyers.

If you find yourself in a similar situation, get in touch with our team and allow us to release you from the worries of negative equity.