Royal Decree on the protection of mortgage holders without resources

 The decree defines the conditions to be met by those entitled to protection (exclusion threshold) and a Code of Best Practices for the banking sector in this regard. The banks will not be forced to adhere to this code of practice but it will be compulsory for a period of two years for those entities that adhere voluntarily.

To date, 95% of the banking entities that operate in the Spanish mortgage market have formally notified the Secretariat-General of the Treasury and Financial Policy of their intention to adhere, meaning that the code will benefit the vast majority of mortgage holders who find themselves in difficulty.

The deadline by which the entities are required to communicate their decision to adhere expires on Friday. The final list of adhering banks will be published before 10 April in the Official State Gazette and on the website of the Public Treasury. Within the exclusion threshold defined by the Royal Decree are those mortgage holders who meet the following conditions: their mortgage repayments are higher than 60% of the net income earned by the entire family unit; the property in question is the main and only residence; and all members of the family lack income from employment or economic activity. In addition, the family may not have other assets with which to settle the debt.

All the mortgage holders that fall within these limits may benefit from the measures contained in the Code of Best Practices. The regulation also contains a moderation of late payment interest rates, which were clearly abusive in many cases.

The Code of Best Practices will be applied in the following stages:

1. Restructuring of the mortgage debt: The mortgage holders who fall within the exclusion threshold may request a restructuring of their mortgage debt from the entity that results in the viable repayment thereof and that must be presented within a period of one month. Such plans must include a four-year period of interest only repayments, an extension of the repayment period to 40 years and a reduction of the applicable interest rate to Euribor + 0.25%. Such restructuring may be requested by all mortgage holders provided that the process for repossessing the property has not begun.

2. Complementary measures: In the event that repayment of the debt remains unviable despite the refinancing process, the mortgage holder may request that part of the capital subject to repayment be written off. Any restructuring of the debt that results in mortgage repayments for the family unit of more than 60% of their income will be considered unviable. Such write-offs may be requested by those mortgage holders currently in the process of having their property repossessed provided that the auction has not been announced.

3. Substitute measures: If neither of the two alternatives above provide a solution, mortgage holders who fall within the exclusion threshold may request that the property be handed over in exchange for settlement of the debt. Such action will result in the cancellation of the entire debt, as well as any personal liability of the debtor, following delivery of the property. The debtor may remain in the property for a minimum period of two years as a tenant while paying an annual rent equivalent to 3% of the total outstanding debt. During said period, non-payment of the rent will be subject to late payment interest of 20%. Settlement of the debt by handing over the property will not be applicable when the process of repossession has concluded or where the property is burdened with subsequent debts.

Source:http://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2012/29120329_ProtectionMortgageHolders.htm?gfe=1