NYT: In Spain, Homes Are Taken but Debt Stays

Discussion in 'Bankruptcy' started by sufaud, Oct 28, 2010.

  1. sufaud

    sufaud Guest

    New York Times
    October 27, 2010

    In Spain, Homes Are Taken but Debt Stays

    By SUZANNE DALEY

    MADRID -- Manolo Marbán, 59, is still living in his house in Toledo
    and going to work in the small pink-and-aqua pet grooming shop he
    bought here in 2006, when he got swept up in Spain's giddy real estate
    boom.

    But Mr. Marbán does not own either anymore. The bank foreclosed on
    both properties last April, and he is waiting for the courts to issue
    the eviction notices. For most Americans facing foreclosure, that is
    the end of it. But for Mr. Marbán and thousands of others here, it is
    just the beginning of their troubles. When the gavel falls on his
    case, he will still owe the bank more than $140,000. "I will be
    working for the bank for the rest of my life," Mr. Marbán said
    recently, tears welling in his eyes. "I will never own anything -- not
    even a car."

    The real estate and banking excesses in Spain were a lot like those in
    the United States. Construction boomed, prices rose at an astonishing
    pace and banks gave out loans just as fast, often to customers like
    Mr. Marbán, who used the equity in his house to finance a mortgage for
    his shop. But those days are over. Spain now has the highest
    unemployment rate in the euro zone -- 20 percent -- and real estate
    prices are dropping. For many Spaniards, no longer able to pay their
    mortgages, the fine print in the deals they agreed to years ago is
    catching up with them.

    Not only are Spanish mortgage holders personally liable for the full
    amount of the loan, but throw in penalty interest charges and tens of
    thousands of dollars in court fees, and people can end up, like Mr.
    Marbán, facing a mountain of debt. Bankruptcy is not the answer,
    either. Mortgage debt is specifically excluded here.

    "Effectively, you can never get rid of this debt," said Ada Colau, a
    human rights lawyer who works for Plataforma, a new advocacy group
    formed both to give legal advice to homeowners and to push for reform
    of the country's foreclosure laws. "Other countries in the European
    Union also have personal debt mortgages, but you can go to the courts
    and get relief. Not in Spain."

    Several opposition parties in Parliament have been pressing for
    amendments to the country's foreclosure laws, including letting
    mortgage defaulters settle their debts with the bank by turning over
    the property. But the government of José Luis Rodríguez Zapatero has
    opposed such a major change in lending practices. Government officials
    say Spain's system of personal guarantees saved its banks from the
    turmoil seen in the United States.

    "It is true that we are living a hangover of a huge real estate
    binge," said Marcos Vaquer, who was the under secretary of the Housing
    Ministry until a government reshuffle last week. "And it is true that
    far too many Spaniards have excessive debt. But we have not seen the
    problems of the U.S. because the guarantees here are so much better."

    Immigrants who moved to this country in the boom years and were the
    first to lose their jobs in the downturn, like Jaime Abelardo, have
    been the most severely affected so far. Mr. Abelardo arrived in
    Barcelona from Ecuador in 1999 with the promise of a job in a
    warehouse. A few years later, he could afford to bring his family over
    and buy a tiny apartment. Or so he thought. But within two years, he
    was laid off. He blames himself for not having been more cautious.
    Still, he cannot get over the figures printed on the dog-eared papers
    he has received from the bank.

    They say he now owes nearly 260,000 euros, almost $360,000, which
    includes about 77,000 euros to cover all court costs, including the
    bank's, his lawyer said. He bought the apartment for less than that --
    about 220,000 euros, he thinks, though many aspects of the deal were
    never clear to him. His wife has left him. His unemployment payments
    are about to run out. He would like to go back to Ecuador with his
    four children, but he does not have enough money. "I'm thinking about
    shooting myself," he said.

    An estimated 1.4 million Spaniards are facing potential foreclosure
    proceedings, according to Spain's consumer protection association,
    known as the Adicae. Recent figures from the courts show that the
    numbers are rising fast. In 2007, there were just 26,000 foreclosures.
    Last year, there were more than 93,000. Early indications suggest that
    they will be higher again in 2010.

    A recent Standard & Poor's report found that 8 percent of Spain's
    housing is now worth less than the value of the mortgage, and with
    prices continuing to fall, experts believe, that figure could rise to
    20 percent.

    Advocates say that Spain's foreclosure procedures tilt far too much in
    favor of the banks, virtually guaranteeing that mortgage defaulters
    will end up owing large amounts after they lose their homes.

    Banks have the right to auction houses in foreclosure. If no buyers
    appear, as is often the case these days, the bank can take ownership
    of the house for 50 percent of its value, according to the estimate
    either at the time of purchase, or at the current time, depending on
    what the mortgage specifies. The banks then have 15 years to go after
    the homeowner.

    If the banks initiate proceedings at any point, the clock starts
    ticking again, experts say. In the meantime, the bank can charge
    interest on that debt.

    Montse Andrés Sabaté, a lawyer with Ausbanc, a consumer association
    that specializes in banking services, says the banks usually charge 5
    or 6 percent, but sometimes much more. "We've seen 18 or even 19
    percent," Ms. Andrés said.

    And then there is the matter of guarantors. Bankers pressed many
    homeowners to find guarantors at the time they took out the mortgages
    or when they began to struggle to make payments. Mario Gozálvez, a
    truck driver, asked his 23-year-old daughter to act as a guarantor
    when he used the equity in his Barcelona apartment to buy a truck
    three years ago. At the time, she did not even have a job, and he
    thought of it as a silly formality. Now, she faces a lifetime of
    paying off his debts.

    "She may not be able to inherit anything from her mother because the
    bank can seize it," Mr. Gozálvez said. "No one explains this."

    Early in the crisis, experts say, the banks were lenient with
    immigrants who had no assets and accepted the property as payment for
    the loan. But some advocates say they are tougher now. Under the law,
    the banks have the right to collect a percentage of a debtor's income
    if it is above $835 a month.

    Santos González Sánchez, the chairman of the Spanish Mortgage
    Association, says it is the bank's duty to try to collect. "This helps
    to explain why our financial entities have not gone bankrupt," he
    said.

    Personal liability mortgages are common in Europe. But advocates here
    say that aspects of Spain's procedures -- how quickly banks can
    foreclose, the interest rates they can charge and the repayment
    schedules they can demand -- are particularly severe. This month, even
    Mr. Zapatero's party joined in voting for a parliamentary motion to
    slow foreclosure proceedings.

    Mr. Marbán knew he was in trouble within months of buying the pet
    store as his business began to taper off. To keep the bank from
    foreclosing, he gave it whatever he could scrape together. At one
    point, he sold his car at a huge discount to meet a payment.
    Eventually, he sold his wife's gold bracelet.

    But it was no good. He could never catch up on what he owed.

    "It's funny, when I finally lost the house, I started sleeping," he
    said. "I cry sometimes, but at least I sleep now."

    Rachel Chaundler contributed reporting.


    http://www.nytimes.com/2010/10/28/world/europe/28spain.html
     
    sufaud, Oct 28, 2010
    #1
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