The phases of the process
The fruits of collective and voluntary work by many people and timely support of various professionals with practical, legal experience over the past three years, the PAH has been accumulating a detailed knowledge of the process that begins the moment you stop paying your mortgage. This knowledge is used within group counseling sessions and is complemented with tips and resources that have been developed and consolidated with daily practice within the assemblies of various PAHs.
Here we share a summary of the three main phases and some guidelines. We want to emphasize that these are only useful indications: in many cases these allowed us to achieve a dación en pago or stop an eviction, but in others it was impossible to resolve the case. Once again, we must remember that the key to all of this is to organize ourselves in order to change the law that, until now, leaves it up to the financial institutions to decide whether the case is resolved or not.
In this sense, we offer you a general tip, useful for whichever one of the phases. Watch out for the vultures! Any person or company is simply lying if they tell you that, for a lot of money, they can solve your problem. Not even the best lawyers can secure any victory with such an unjust law as it is now. If a financial institution is clear that it wants your home, no lawyer or company can stop this. Of course a good professional can help you negotiate better with the institution, however this is something you can do alone by following some guidelines or, better still, with the support of the nearest PAH. In this way you don't have to spend money you don't have and will discover that by getting together with other people you will feel less alone, enjoy the solidarity that is brings and learn how to empower each other. This is priceless.
Among the people who try to take advantage of the misfortunes of others, one must take special care of the pseudo-mobsters that move around the courts. These people spend their time going through all the bulletin boards of each court where, by law, all foreclosures, including personal data (name, last name and address) are advertised. This allows them to send letters, make phone calls where they present themselves as someone who has all the information about your case and, if you pay them, they can "help" you. Sometimes they pass themselves off as lawyers acting on behalf of the financial institution, others use commercial names or plagiarize images from initiatives like the PAH in order to attract customers. This was the case of one "Anti-Eviction Platform. Legal Solutions to Mortgage Problems" or of "Catalan Xarxa Legal Defense". If they contact you, the only thing that will happen is that you lose money that could be used for other more important things.
Other general advice, also valid for whichever one of the phases and, perhaps, the most important: calm, lots of calm. Nobody goes to prison for not paying a mortgage and the judicial proceedings for a foreclosure and eviction take time, at the very minimum some months (but more like 18 months). It doesn't happen overnight and this gives us time to figure out what we can do. It's very common to feel anxious from the moment one starts to experience payment difficulties, further complicated by the office manager or contact person of the financial institution who refuses to offer any solution or even threatens to throw you out on the street and leave you with nothing. The anxiety over the possibility of losing a home is completely understandable, but once you decide to stop paying, because you could not do anything else, it doesn’t help to worry about it anymore. Give priority to your wellbeing and that of your family. Don't allow these economic tensions to ruin your day-to-day. It's always possible to do something and even more so with the PAH that is closest to you or another similar collective based on mutual support.
Phase 1: Stop paying. Tips
This is the phase that doesn't yet have any judicial procedure. It starts the moment that you are still paying but you know that soon you won't be able to, and continues during those months in which you have stopped paying but the financial institution is more or less open to negotiation. The main partner is the financial institution and it is with whom you should be negotiating.
You should know that, while you are still paying, hardly any institution will offer you an alternative solution. Paradoxically, the more responsible you are, the less ground you stand on with the institution. It is therefore likely that, in anticipation of the approaching time when you can no longer pay, you go to your bank to raise the situation with them; you will receive instead a generic phrase such as "try to pay" and "we can't do anything". The system is so perverse that the bank is happy when you are paying and doesn't want to hear anything about your mortgage difficulties. It's the same to them whether you need to prostitute yourself, stop eating or rob a store in order to pay the mortgage. Therefore, more often than not, it's impossible to begin any serious negotiation with the institution until you stop paying.
Another thing to take into account is that this negotiation is even more complicated when there are guarantors. The presence of guarantors (usually parents or other people close to us that want to help because they love us) becomes an added incentive for the bank: they can seize not only the holdings of the mortgage owners but also those of the guarantors, which makes the judicial process more attractive for them. Current regulation is just as ruthless with the guarantors as titleholders, who can therefore have their present and future goods seized. There is no way of removing guarantors from the mortgage if the financial institution does not agree to it. Banks, by definition, look for the major benefit possible with minimum risk. They never accept taking away the added guarantee given to them by the guarantor except when offered another guarantor or form of collateral as a substitute.
The topic of guarantors makes it difficult to obtain dación en pago. But just because it’s more difficult does not mean that it’s impossible. Many dacións en pago were obtained with mortgages containing guarantors, but these depended on the will of the bank and our perseverance in drawing out this will.
Finally, in this phase, at the moment of stopping payment, you have to prepare yourself for the harassment you will suffer because of the technical procedures for reclaiming the debt: claim letters, calls at home, work and to guarantors. Depending on the financial institution, these techniques are more or less aggressive. The worst ones are those that subcontract services because, in these cases, they are dedicated professionals who chase down people and often have added incentives by earning commissions if they can get somebody to pay up.
In extreme cases, they exercise real abuse, by making people feel guilty or looking for any weak points where they can cause pain: talking on the telephone with young children or colleagues at work. Don't be afraid. If you are scared then they will push more. On the other hand, they will eventually leave you alone, if they sense that it is not working.
Tips
Make sure you decide on which solution you want and then respect it. At the beginning of the negotiation, it is most likely that the bank will tell you that it is impossible what you are proposing. Or if you talk with somebody within the administration, it is possible that he will tell you that there is nothing that can be done, that the law is the law and you should accept whatever the lending institution is proposing to you. Don’t be discouraged and defend what you believe in as much as is necessary.
In other cases, a grace period will suffice: if the economic difficulty is short-term and with anticipation of recovery. For a set time, not exceeding a year, the client agrees to pay only the interest, without amortizing the capital amount, which reduces the monthly payment. However with the crisis, most cases deal with mortgages signed at the height of the housing bubble, with little reduction in the capital amount: the economic difficulties are severe and long lasting. At the same time, the real estate market is at a complete standstill and it is impossible to sell houses at a price equivalent to the debt. In these cases, a majority of the people prefer to hand over the property and exit from the debt in order to start again with an affordable rent, either in the same house or another. For this, most of the people affected demand the right to dación en pago.
Dación en pago exists in current mortgage law, but not as a right of the creditor. It is provided as a possibility for both parties to agree on when signing the contract. Because most people didn't know about it, most of signed mortgages did not include the possibility of dación en pago. Still, it remains possible if the lending institution permits it. Currently, when you arrive at the bank office for the first time and ask for dación en pago, in 99% of the cases they tell you that it is impossible and cannot be done. Don't worry. This is normal. What you have to do is insist on it. It's probable that they will make you a counterproposal and for this you have to be very clear about what you want and don't want.
The financial institution will usually propose a refinancing or novation, substituting a new contract for the old one. This implies modifying the conditions of the mortgage with the result of reducing the monthly payment; for example, extending the repayment, increasing the capital amount and modifying the applicable interest rates. You have to be very careful with these proposals because most of the time they are bread for now and hunger tomorrow. This only prolongues the agony and increases the debt. Reducing the monthly installment becomes, in the end, not as significant as you first thought. For example, although they might go down for a year, they will go up again even more than before. Novations also involve additional costs that the institution will often not explain (notary, management, property registration, reappraisal, commissions, etc) but that you end up paying. Even worse is when they propose that you take out a personal loan, saying that you can compensate the money that you can't pay with the money they are lending you. In the case of personal loans, interest rates are very high which would increase the debt in the end to an unreasonable amount. This only adds fuel to the fire.
If there is anything that we have learned so far, it is never to sign anything until we are sure we completely understand it. You must always demand that all proposals are given in writing, allowing you and somebody you trust to take enough time to read though everything slowly.
When to stop paying?
Another decision that can only be taken by the person who is directly affected is the moment when you stop paying because you are no longer able to do so. Frequently, many people, when faced with the anguish that goes along with the foreclosure and eviction procedures, will ask for money from family members and people around them in order to continue paying the mortgage. Even worse, they stop paying for basic necessities (food, water, electricity, gas). Another common situation is that many people continue to pay, using up their unemployment benefits, knowing full well that when these benefits stop, they will not be able continue with the payments.
Only you can decide when to stop paying but, from our experience, we can suggest three things: 1) No house, mortgage or financial institution deserves the sacrifice of any family; the family's health comes first and you should never stop attending to basic needs in order to pay a damn mortgage. 2) If you know for sure that you are not going to be able to pay, (for example, within three months from now when the unemployment benefits dry up) then you should think of these months, when you are no longer paying, as money saved that could be used towards caring for the family. If you know for sure that you will not be able to pay, then do it: paying a few more months will not reduce the final debt. 3) Once you have made your decision, try to be more positive and less worried about everything. You did everything you could.
A last bit of advice: don't believe office managers that tell you: "Just pay what you can because the bank will see that you have good intentions". As soon as you stop paying the entire amount you are in breach of contract and start to accumulate interests (which are very high). Therefore, unless you have something in writing about a grace period or reduction in monthly installments, “Pay what you can,” means losing money and (if the bank decides) the start of judicial proceedings.
Techniques for negotiating with the bank
When we start negotiating with the bank, before anything else, we need to be aware that: 1) we haven't done anything wrong; 2) fear and anxiety works against us. Except for a few honorable exceptions, office managers (who are under pressure from their superiors to get results) create a shield to people's suffering and are not deliberately ignorant of personal situations. This sometimes provides an opportunity to exert greater pressure. There are not a few cases where people, who for years received insults and threats from the same office, were suddenly treated with kindness as if from one big family, when the PAH intervened.
Whether the bank is friendly, indifferent or aggressive, you need to be as calm as possible when starting to negotiate. At the moment considered appropriate (either before or after you stop paying), you need to go to the office manager, inform him of the situation and propose a solution. Ideally, do this in person and take everything in writing, with two copies, one for the institution and another to be stamped. If you wish to ask for dación en pago, you can use the model for writing it found on the PAH website. If the manager says that it is not in his hands, request that it be carried forward to the head office. This is definitely something he can do.
From here, it is a question of applying common sense and, slowly but surely, increasing an insistent tone. Upon presenting the proposal, for example dación en pago plus rental of the apartment, you need to wait until they give you an answer. There is no predetermined time for them to answer you; sometimes it happens quickly but, more often than not, it takes weeks or even months. You are not in a hurry, during this time you are negotiating. Rarely will the bank start with a judicial proceeding and, for this reason, it buys you time in the house without having to pay for it.
It's possible that, before giving a definite answer, they ask you for additional documentation (receipts to show that all your property tax and community services are paid-up or a document that proves your income). This is a good sign that they are seriously studying your proposal. In the cases of dación en pago, it is usually required that all payments related to the house are current and that there is no additional burden on the home (for example a usufruct or other seizures resulting from other unpaid debts).
It's more common that they don't accept your proposal for dación en pago and instead put more pressure on you to find the money to pay it off or even offer, as we have seen, a refinancing or personal loan which makes the debt bigger while allowing the bank to hide the bad debt in their accounts for a few more months. You must hold out, stay firm and be insistent. However, if they are considering the possibility of accepting the proposal, don't fall into the trap of adding guarantors. Within this proposal they might include a slight improvement to the conditions in exchange for increasing the number of guarantors by telling you "We could make an arrangement to the current agreement and offer a lower fee if you add your son as collateral..." As we have already seen, this traps the guarantor into a loan for life. It is not worth it. You will lose more sleep from mortgaging a loved one than being left with a debt and no house.
Therefore, it is with much calm and firmness that you explain to your contact person that perhaps he didn't understand you. Your situation requires a dación en pago and he better have another look at it. If necessary, you present the proposal in writing one more time. If he comes back saying that it's "impossible", show that you are well informed and explain that you know that it was possible in other cases and with the same financial institution. Why is it not possible in my case? Are you discriminating against me?
We can also use resources used by the Administration to strengthen our petition. We can, for example, add a report by social services to our petition, which certifies that we have no resources. Alternatively, in those municipalities or regional communities that have mediation services to financial institutions, asking that they get in contact with the headquarters of our institution to support our application.
At any time during the negotiation it is essential that we turn it around, by losing fear and making it known to the institution: until now, the banks have grown stronger and taken advantage of the anguish and stress felt by those affected by pressuring them to refinance their contracts. They must understand that we are not afraid and we are aware of everything that we have lost (the house, a debt for life) and therefore have nothing more to lose. We have informed ourselves and therefore know that they won't be able to seize anything if we put our things under somebody else’s name and work under the table. We will stay in our homes until the last possible moment and it will cost them a lot of money to evict us. Until now this mortgage and this bank has been our worst nightmare and perhaps now we might turn into theirs.
We will continue insisting as is necessary. If they ignore us, it is now perhaps a good time to ask for the support of our nearest PAH. With the experience of the last years, we found that we have more lobbying power when we touch on the institution's public image. A possible action is to situate ourselves, peacefully yet persistently, at the entrance of a banking branch and distribute flyers to the customers explaining what the bank is doing and how it treats its customers when they suffer financial difficulties. Some people have even camped out for several days and in this way managed to set up a meeting with the bank representative to find a solution.
For the most extreme cases, where they don't want to receive us or they treat us badly, we can turn to the media and report the case. We can also do collective actions, getting together with other people affected by the same financial institution and force a collective negotiation. It is always important to never give up and to persevere.
The possibility of renting out the home
If the economic difficulty that prevents us from paying the mortgage is a temporary one and we have some alternative housing (for example family) which won't place a burden on anybody, then there is the option of renting out the home. However, if the insolvency goes on for longer, the rent is not enough to cover the entire mortgage payment, or if you simply have no other place to go: better to not complicate life even more.
Another possible use of renting out the home is to keep possession of it once the apartment is auctioned off and the bank becomes the new owner. At the beginning of 2012, a message spread like wildfire around the Internet which claimed to have found the perfect solution for preventing evictions. By renting out an apartment for a symbolic amount and for an indefinite period to somebody you trusted, the bank would have to respect the rental contract when it took over the property. It's not exactly like this, but there are some elements of truth in some cases that could prove useful.
Although some mortgages have an abusive clause in which it's not allowed to rent out the home, the fact is that the property owner can rent out his apartment whenever and to whomever he wants. However, if he wants this contract to be valid with a new owner, he must take care that there is no indication of fraud. For example, by putting the contract in the name of somebody close to him (such as parents or children), putting the rent too low or making an indefinite contract: signs that this contract was made to circumvent justice and, as a result, can easily be annulled by a judge. Ideally, the contract should be signed before one stops paying the mortgage. The tenant should register the property and put all services (water, electricity, gas) in his name. The rent should be for a reasonable amount, close to the market price and there is some receipt of bank transfers that prove payment of rent. Although not required, it is recommended that the contract be registered with the Urban Property Chamber, which gives more credibility to the contract even though it requires some registry and notary fees. Should a judge annul the contract, one can start another process to defend it. The mere fact of initiating this procedure serves to delay the eviction. Although this is unlikely, should the judge decide with certainty that the rental contract is fictitious and the property owner has committed fraud, then he could be prosecuted for concealment of assets (article 257 of the Criminal Code).
Concerning the contract's duration, the Law of Urban Rentals (LAU) makes it very clear that, in the case of foreclosure, the new owner will only have to respect the first five years from the signing of the contract. After the five years, the tenant could receive an automatic extension of three more years but only if the bank fails to notify about the contract’s termination.
Be careful with the code of good practice adopted by the government
In March 2012, the government, pressured by the social alarm awakened by thousands of foreclosures, adopted a Royal Decree of "urgent protective measures for mortgage debtors without resources". These measures included a code of good practice for financial institutions that aroused a strong expectation to the extent that, when the government announced it, it was presented as a possibility for dación en pago.
However if we read through the final version of the decree in more detail, we see that very few people can actually get it, and that dación en pago is the last of the possibilities. For this reason we say "Careful"! From the onset, this code is only voluntary for the banks. If your financial institution didn’t sign, then you are excluded from it. In the case that the institution has signed, you are eligible only if all family members are unemployed, if the mortgage is for the primary residence, if you have no other property, if the mortgage was for accessing this home (excluding the thousands who mortgaged their homes to save small businesses or jobs) and if mortgage payments are higher than 60% of family income. In the case where there are guarantors: if they have property and therefore assets for covering the debt, then you are also ineligible.
This list of requirements excludes a majority of those affected. However even those that are eligible should take care because dación en pago is not the first option. The code establishes that the bank must first make an offer to refinance with a series of options that include the possibility of increasing the mortgage to 40 years. It is only in the case that the final proposal implies a monthly payment of more than 60% of the family income that you have an option to have the debt reduced or dación en pago. In conclusion, it appears that the code proposes to limit or reduce dación en pago and force unwanted refinancing on people. In fact it was quite significant that most financial institutions quickly signed and adhered to this voluntary code a few weeks after it was adopted. In late March 2012, the PAH claimed that financial institutions used this Royal Decree to put a stop to negotiations-in-progress, freezing daciones en pago with the excuse of not meeting up to the stringent requirements of the code of good practice. Therefore, remember the first advice: decide on the solution that you want and make sure that this is respected.
Useful resources
Document for requesting dación en pago or renting out the home
It is a very simple model that you can download from the PAH website (www.afectadosporlahipoteca.com). You only have to need complete your information, personalize the requests (leave out the request for dación en pago and rent or, in the case that you want dación en pago then delete the request of affordable rent), make two copies and take them to your bank branch: one for them to forward to the central branch and the other to stamp. You can also make a third copy and send it, through registered mail, to the management service of bad debts of your bank's central office.
Government aid
If you have severe economic difficulties that compromise basic living (housing, food, basic services, children's schooling), turn to municipal social services and housing offices within your autonomous community. These are various aids that certainly will not solve all your problems, but they can offer a bit of support. Unfortunately, current administration, with their management of the crisis, is cutting this already insufficient aid. You have to go directly to social services within your area to find out what the current support is.
Institutional mediation services
As was already explained, the first experience of mediation led by the Generalitat of Catalunya, known as Ofideute, drove other mediation services between people and financial institutions within various autonomous communities and municipalities (Terrassa, Sabadell or Logrono, among others). They only act in the cases of primary residences and recommend that people make contact with them as soon as possible, as soon as they begin having payment difficulties. These services can only intercede on the basis of "good will" and cannot therefore guarantee any results, whatever the situation of the person concerned. Remember, when you deal with them, clearly express what your demands are, to avoid this mediation becoming a strategy that the bank uses to push a refinancing which you do not want. The PAH's experience tells us that those cases in which more help is needed (less economic means, advanced legal proceedings) the less likely these institutional mediation services can resolve them. In any case, it is a useful mechanism for applying more pressure in your negotiation.
Ask your local municipality and autonomous community if they have a mediation service.
Making a complaint to the financial institution and the Bank of Spain.
All financial institutions have a customer ombudsman and any customer who believes he or she has been unfairly treated may submit a written complaint. Once the complaint is admitted for processing, the ombudsman must ask for the necessary documentation from both parties, the bank and customer, in order to make a decision, in writing, within a maximum of two months. Similarly, the Bank of Spain has a claims service where you can report bad banking practices. A requirement for using it is that it be used via the ombudsman of the customer’s financial institution. The claim must be made in writing using an official form that you can find on their website: www.bde.es. In both cases, it will hardly lead to the resolution of your process, but at least serves as a tool for applying pressure. If everyone did the same thing, then we would succeed in forming a collective action that made it clear to financial institutions and the Bank of Spain that, although perhaps their practices are legal, the public considers them unjust, illegitimate and immoral.
Phase 2: Immersed in the process. Tips
This is the phase where the financial institution starts the procedure for reclaiming unpaid debt. It can start the moment when you stop paying which results in a breach of contract. Normally, the banks wait a minimum of three months before starting the formal process, but you should know that it could start with only one non-payment. An additional problem from Spanish legislation is what is known as "early termination": from the moment that you stop paying, the bank can reclaim the unmade payments plus interests for late payment but also the entire outstanding loan.
Our interlocutor will still continue being our financial institution during this phase because, despite the intervention of a judge or a notary, the procedure is designed in such a way that we cannot claim anything. What is our objective? Extend the procedure as long as possible, for two reasons: first because, come what may, there's time that we gain for staying in the home and second, because the more you prolong it, the more time you have to force a negotiation. Think that the more advanced the process becomes, the financial institution can always stop and come to some agreement with you, so never stop negotiating.
With this notification, the court gives you ten days to pay. If you don't pay, the court sets an auction date for the mortgaged home. This date is notified to all loan holders a minimum of twenty days in advance and also published on announcement boards at courthouses so interested people can participate in the auction.
Throughout the procedure, and up to to the day and time of the auction, there is only way to stop it (valid only for primary residence cases): pay everything that you owe from the moment the lawsuit was issued, plus interest for late payment plus legal costs but, for now, saving you from owing the entire mortgage debt. Of course, in the current crisis, whoever stops paying does so because he can't and if not in the beginning then, even more so, later when the debt increases with added interest. The law does not provide the possibility of any appeal, only what are called "causes of opposition", in the unlikely event that formal defects in the procedure or errors have occurred in the calculation of the amount claimed.
On the scheduled date, the home goes up for auction at the appraised value listed on the mortgage contract (which usually coincides with the initial appraisal, although it could be different). In theory, the law allows for any person to participate in the auction, prior to a consignment equal to 30% of the listed price, and that the auction goes to the highest bid provided that it exceeds 70% of the auction value. In practice though, with the crisis, few people attend auctions and almost all auctions remain deserted. In this case, the bank has twenty days to notify the court if the house went for 100% of the debt or 60% of the appraised value. You know, from the experience taken from this book, that the bank usually takes advantage of this opportunity. In rare cases, 60% of the appraised value is equal to or greater than the debt. This frees the loan holder from any debt, including receiving the difference if it is higher than he owes. But in most of the mortgage cases, signed during the height of the housing bubble and with virtually none of the capital amount repaid, 60% means leaving the person with a considerable debt for life.
Despite the general helplessness that this procedure causes, which by law prevents us from explaining our personal situation, there is a small consolation to those who suffer harassment from debt collection companies. Once you start with the court proceeding, at least you no longer suffer from their debt claim "techniques".
Tips
Requesting free legal aid
Article 119 of the Spanish Constitution recognizes the right to access to free legal aid. This 1996 law governing the procedure for accessing legal aid recognizes the right for all citizens who cannot afford legal assistance if their household income does not exceed twice the IPREM (Public Indicator of Multiple Effect Income). In 2012 the IPREM was 7,455.14 euros per year. You can request legal aid, a lawyer and attorney office, at any stage of the proceedings, which can be used for different things. First of all, to present yourselves and therefore ensure that you receive complete information and have the opportunity to present this in writing. Secondly, in order to gain time as the proceedings stop the moment you apply for legal aid until you have the answer of whether or not you have been granted it. Thirdly, to avoid being charged legal fees at least during the time when your economic situation does not improve. It is understood that if you are accessing free legal aid for the foreclosure procedure then you will not have the money to pay for court costs.
One disadvantage to public versus private defenders is that you cannot choose who represents you. Like any other profession, you can touch on someone who takes it very seriously, pays attention and is willing to listen to your proposals, or have the misfortune of having somebody who is incompetent or, worse yet, poorly motivated, resigned and convinced that “there is nothing to do”. If the lawyer fails to keep you informed or you think is acting against your interests, then you can try asking for a change within the corresponding lawyers' association.
Maintaining negotiation with the financial institution
Convincing the bank to reach a settlement is your only chance to stop the foreclosure process. To do this you can still use all the advice given in the previous phase, both in negotiation techniques as well as turning to social services, if this hasn't been done already, and other services provided by the Administration, such as mediation.
Stop or attend your own auction
You should know that, contrary to what many people think, the auction is not a solemn affair: it is a mere formality which the judge is not even involved in. The clerk asks in the hallway if there are any bidders. If there aren't any, then he prepares a brief which is delivered to the bank's attorney and, if present, to the person suffering the foreclosure. Whether you have a lawyer or not, you have the right to attend the auction of your own home. You can't do anything but, at the very least, make the officials who run these actions as an everyday routine become a little more aware that there are lives sinking behind this "procedure". If you consider it appropriate, you can also try stopping the auction through collective action by inundating the courts and preventing judicial proceedings, however this is difficult to realize (courts have police present) and this will only buy you a little more time. In any case, if you go to your own auction and, once realized, the officer asks you to sign the minutes of the auction saying that the bank can now award the house for 60% of the appraisal price, refuse to do so. You don't need to validate an injustice with your signature and, whether you sign or not, it doesn't change anything.
Useful resources
Application for free legal aid. You can ask for it in the courts or Legal Advice Services (SOJ) of the lawyers' association closest to you. (you can find it at www. Justice-gratuita.es / pjg / home.do). They will ask you for a considerable amount of documentation to prove your income.
Appeal in case of denial of free legal aid. If you are refused free legal aid, you can file an appeal within five days from the time that you have been notified. It is common that they at first refuse you because of an overly restrictive interpretation which fixes on if your income exceeds twice the IPREM. But it is worth appealing because you will manage to get them to examine your case more closely and assess all the circumstances (if you have people in your care, other expenses, and so on). To do this, you can use the form available on the website of the PAH: www.afectadosporlahipoteca.com.
State and regional ombudsmen. In the event that you receive unfair treatment by any of the public administrations (social services, free legal aid or, for example, where court officials deny access to information on your case to try to convince you not to ask for legal aid), present a complaint to both state and regional ombudsmen. For more information go to the website of the State Ombudsman: www.defensordelpueblo.es.
All resources of the previous phase. Precisely because the judicial process leaves no room for manoeuvering and our goal is to continue negotiating with the bank, bargaining techniques and resources such as the written request for dación en pago, government aid, mediation services, complaints to ombudsmen or the Bank of Spain are still useful resources at this stage.
B. Extrajudicial route
While financial institutions use mostly the courts when it comes to foreclosure, by the end of 2011 the PAH reported that it began to receive cases of people whose financial institutions had started to demand the unpaid mortgage balance using a hitherto unknown route: the extrajudicial procedure. In fact, almost all mortgage contracts contain this possibility, in a way that the bank can decide to foreclose through a judicial or extrajudicial process.
If the judicial route has been widely denounced for being unjust and expeditious, the extrajudicial route goes even further. In the first place, it is even faster (it can be resolved in three months). In the second place, it takes place before a notary and, therefore, the person involved does not even have the right to free legal aid and is left utterly defenseless. Third, the system is developed that if, after three attempts, the house is still not auctioned off, then the bank is awarded the home without a minimum rate, not even a euro. In the first auction, the house goes for 100% of the appraisal value, in the second for 75% and in the third without a fixed minimum. As in judicial auctions, with the crisis, most extrajudicial auctions are left deserted, which allows a financial institution to claim the home for whichever amount it sees fit, leaving the debtor to pay the difference not covered by the amount.
Fortunately, once again mobilization by those affected has not only served to visualize this procedure in front of the ignorance and inaction by public administrations, but has also started to provoke reactions. This first took the form of concentrations of citizens before notaries carrying out these auctions, then the PAH requested a meeting with the dean of the Association of Notaries of Barcelona and managed to get that same Association to recommend that all Catalan notaries apply the same fixed minumum as judicial auctions, at that time 60%. Manuel López Paradiñas, president of the Association considered it "imperative that notaries offer citizens the same guarantees that a judge would". In the same statement, the highest governance body of notaries urgently requested that the Minister of Justice, Alberto Ruiz Gallardon, change extrajudicial mortgage regulation to ensure the rights of consumers. Finally, in March 9th, 2012, a Royal Decree amended extrajudicial procedure, in cases of primary residence, making it comparable to the judicial route, by setting the minimum rate to 60%.
The problem remains, however, that this is a faster process with fewer guarantees for the debtor and with a substantial problem remaining: adjudication of the home for 60% of its appraisal value which, as in the judicial route, leaves people indebted for life. For this reason, the need remains for social pressure to make a change in regulation the gives people a second chance. In very little time we have moved from 0% to 60% of the appraisal value within extrajudicial adjudications. The movement works.
The case of D. Lozano-Viladecans
D. Lozano contacted the PAH just as the third auction was about to take place using an extrajudicial procedure. The PAH contacted Banesto to try to negotiate a just way out of this, but the bank's representative made it very clear that they would take advantage of the current system and that the house would be awarded to them for a low price. The PAH also contacted the notary, who extricated himself from any responsibility and just repeated that he was applying the law as it was, by allowing the adjudication without a minimum value.
On January 26th, 2012, the day of the auction, twenty people, members of the PAH, accompanied D. Lozano to the notary. Despite appeals to the notary, he allowed Banesto to be awarded the home for 35% of its appraisal value. However neither the person concerned nor the PAH gave up, but brought their complaints to the media and the Association of Notaries of Cataluyna. Finally, faced with the growing social alarm that the news generated, Banesto contacted the PAH and accepted cancellation of the debt as a minimum up to 60% of the appraisal value.
Tips
If you have stopped paying the mortgage and somebody who says he is a notary knocks on your door, do not open it or accept any paper. The only way of avoiding the extrajudicial route is by not accepting the notarial notification delivered to your home. In this case, the law states that the bank has to follow the ordinary judicial route. If you accept it, however, there is no way to stop the procedure.
Remember, despite that the adjudication by notary route is faster than the judicial one; the notary cannot enforce the debt nor evict you. To do this, the financial institution must follow the judicial route and in this case you can follow the advice provided in the third phase.
Phase 3: Once the home is auctioned off. Tips
Once the auction takes place, within the context of the current crisis, where most auctions remain empty, we have a double problem: the remaining debt and threat of eviction.
While it is true that the house is no longer yours, and therefore leaving you with less room for maneuvering, one of the main tips is still valid: keep calm because it’s not yet the end of the world. In fact, different PAHs throughout the country achieved various cancellations of debt and prevented dozens of evictions after auctions had occurred. The key is not to give up.
Another point to make very clear is that completion of the auction does not mean an automatic eviction or seizure of both payroll and property. For these two things to happen, the bank needs to ask for a court order for which you have to be notified well in advance.
Regarding the remaining debt (not covered by the adjudication price from the auction plus interests and court costs) there are financial institutions that don't immediately carry it out the eviction. Don't put trust in this. By law, mortgage debts expire after twenty years and personal debts at fifteen. The problem is that the term starts again; each time the creditor takes an action to reclaim this debt. For this reason, in practice, we are talking about eternal debt. On top of this, to the extent that this also generates new interests, the debt grows. They cannot take everything, however, there is a fixed minimum that is immune to seizure.
Unfortunately, you must also take into account that the seizure is not the only negative result of the debt: your name will appear on delinquency records which prevents you from doing many things or will change and make the day-to-day more difficult: buying a washing machine, getting a telephone contract, accessing a public housing flat or even getting a job.
Concerning the eviction, it's very important to know, for your well-being, that it does happen from one day to the next. Police can't suddenly appear at your house. The law protects the inviolability of the home, and removing somebody from the home can only be done respecting minimum guarantees. Among others, the person being evicted has to be notified of the day and hour of the eviction with a minimum of one month’s notice. Even if there is a specific deadline, given the collapse of the courts, the time between the auction and eviction typically takes between six to twelve months, sometimes even more. Once the date arrives, there are various resources that can help us put it off even longer.An additional problem: taxes claimed after an auction or a dación en pago.
If it wasn't enough to have to suffer through an auction or dación en pago, a little while after you discover that the nightmare isn't over yet. The system is so perverse that is doesn’t distinguish one situation from the next, even though you lost a home through a state of economic bankruptcy, they can demand from you a least two taxes, the Municipal Added Value Tax (Plusvalía) and the Income Tax for Individuals (IRPF) in the annual statement.
The plusvalía is a tax charged by the municipality that is based on the increment in the value of the land purchased (IVTNU). The seller of a normal sale pays the municipal plusvalía. In the case of dación en pago, in which the home is used to pay off the debt or you lose it in an auction, you are required to pay the plusvalía. The amount depends on the number of years since the previous sale and a few tables of the law on bases of local government. Payment is due within thirty business days from the assessment or adjudication after the auction. As a result of social pressure, some municipalities (like those of Sant Feliu de Llobregat in Catalunya, Madrid Torrejon or Logrono in La Rioja) or even entire provinces like Vizcaya are exempting people hit by foreclosures from this tax, as well as cases where people successfully obtained dación en pago. The municipal government is solely responsible for the plusvalía tax, therefore if your local government is still collecting this tax, speak with local groups and pressure your local government for them to eliminate payment of plusvalía in the case of dación en pago or adjudication by auction.
On the other hand there are plusvalías from the sales operation, which are the capital gains that the owner has when selling the property and therefore taxed as personal income in the annual tax report. Until now, the treasury considers dación en pago as if it were sale. If we add that many mortgages were given out at 100% to 120% of the appraised value, and at that moment of obtaining dación en pago this amount was increased significantly because of late payment interest, to the treasury it could appear that you made a profit, by giving away the home for a higher value that it cost you.
Finally, fiscally a dación en pago is more expensive than an auction. Dación en pagos have to pay the transfer tax twice: the debtor has to pay when the creditor carries out the dación en pago and the creditor makes him pay it when he sells the property. However, auctioned properties are only taxed on the basis of the adjudication value. Y se benefician de la posibilidad del «remate», es decir, la opción que tiene el banco de disponer de un tiempo para pasar la adjudicación a un tercero, de modo que paga el impuesto una sola vez. El impuesto de transmisiones patrimoniales y actos jurídicos documentados depende de las comunidades autónomas.
There is also the risk that you will continue paying property tax (IBI), community costs or you may even be prevented from accessing public aid because you are registered as a property owner. Many financial institutions take a lot of time registering the change of ownership to avoid paying taxes. In these cases you have to get a court resolution stating that your property was adjudicated to another. You can do this through your lawyer or by going straight to court with your personal identification. When you have this document, give a copy to whomever you have a problem with (the municipality, in the case of property tax, or the home owner's association in the case of community costs). You can also issue a complaint about the financial institution for tax invasion to the treasury.
Tips
Asking for free legal aid
If you have not already asked for it during the previous phase, you can ask for it now. If some court worker tells you to not ask for free legal aid because "at this point there is nothing more to do and it would be useless" then ignore him. This is your constitutional right and nobody can tell you otherwise. Additionally, this phase, same as the last one, helps put a halt to the proceedings pending resolution of your request and allows you to save time and resources for requesting postponements of the eviction.
Current resources
Among the professionals in the legal world (lawyers, judges and court clerks) there are many who are quite resigned and, faced with the harshness of current mortgage procedure, think that it is not worth doing anything about it. Maybe you meet a lawyer who tells you that it's of no use to present any appeal, or a court clerk that tells you there is nothing he can do. Insist on it. You have every right to do this and it will always allow you to do something. At the very least, you gain extra time for negotiating with the bank. It is therefore possible to succeed in suspending the eviction (the law provides for this possibility). Many times, a judge, if he has a minimum amount of sensitivity, may suspend the eviction a second or even third time.
In the case of the execution of the debt and the bank's request for an attachment order from the judge, you can argue that the real value of the auctioned house was more than the adjudicated value. Judges are becoming more and more receptive to these arguments.
Demand a cancellation of the debt
Once the home is auctioned off, dación en pago is no longer possible because you no longer have a home to give back to the financial institution in exchange for the debt. To the extent that the final debt depends on the law and also the will of your creditor (the financial institution), it can also free you whenever it wants by cancelling the debt. For this reason, it's important not to throw in the towel and to continue negotiating with your financial institution. The PAH has managed to get various cancellations. It is completely possible. On the other hand, the PAH, together with other institutions, continue working on regulation for retroactive dación en pago. Join this movement. The more we are, the more likely we are to achieve it.
Facing confiscation
If you didn't obtain a retroactive dación en pago or a cancellation of your debt, then they can start to seize your assets, however not everything. Make sure you apply the latest reform from July 2011 and that they cannot take out more than is allowed. They cannot touch the first 962 euros of your salary or 1,347 euros if you have other people in your care. Apart from this amount, there is also a progressive table for confiscation. If the bank does not respect this minimum, then file a complaint with the National Institute of Social Security (INSS). The same applies with guarantors who must also respond to the debt with present and future assets, including wages.
The bank can confiscate not only the salary from both you and your guarantors, but also any property in your name and current accounts. Properties cannot change owners once the proceedings have started, as it is considered a concealment of property (a fraud). In regards to current accounts, once you deposit the payment with the proportional amount retained according to the seizure, immediately withdraw all remaining money from the bank. If it stays there a few days, then it may stop being considered an amount immune from seizure and converted into a seizable asset.
Go to social services
Although some municipalities work better than others, going to social services during this phase, in general, will help you for two reasons. On one hand, they can help to you request a temporary suspension of the eviction in front of the judge. This is not the same as if you were to request it from City Hall, arguing that you had not yet found alternative housing but were still looking. If they do not want to do this letter for you, at the very least they can provide a supporting document that you are doing these steps. This can serve as a motive for postponement by the judge.
On the other hand, the municipality can also put pressure on the bank that allows to you stay in your home with affordable rent. If you don't get this, then City Hall must find suitable lodging for you and your family. It's possible that, in the beginning, they may say that they have no public housing. You must insist. If you have no other housing possibilities, they are required to prevent you from ending up on the street. In the worst-case scenario, they offer you temporary lodging.
A warning: Although this only occurred in specific cases, you should know that sometimes social services threaten to take custody of young children in the event of an eviction where the family does not have any alternative stable housing. If this happens to you, don't be afraid and quickly issue a complaint to both the media and Ombudsman. Ask help from the closest PAH and other support groups to help you develop complaint actions and visibility for your case. You can also register yourselves at the home of a friend or family member in order to have a permanent residence on record.
Resisting an eviction
You have exhausted all attempts at negotiating with the financial institution and all administrative and legal channels for delaying the eviction and/or securing affordable housing and there are no indications that they will have satisfactory results. When the eviction dates finally arrives, then you can resist the eviction as a way of postponing it.
The PAH has a detailed protocol that allows you to stop evictions in a peaceful manner. As there are, unfortunately, dozens of evictions taking place each day, judicial commissions have turned them into a routine practice. This means that, as a rule, the first order to evict does not require any special arrangements. All they do is simply move the house in question forward to the court clerk, the bank prosecutor and, many times, a police patrol. Given this scenario, it is relatively easy to stop an eviction. It is enough for a group of people, forceful but peaceful, to place themselves outside the door so the judicial commission cannot enter. It is not the job of the court clerk to use physical force. Furthermore, if this is used, he must obtain a specific court order to do so, apart from the eviction. Consequently, it is more often that, when faced with the concentration of people, the judicial commission decides to suspend the eviction. Upon returning to the court, he has to communicate the impossibility of carrying it out to the judge and from this set a new eviction date. This must also be communicated to the person or persons being evicted.
Having achieved the postponement (which could be within one or four months or, on occasion, has been only two weeks) we are still not finished. On the contrary, it is now time to apply more pressure. On the same day, once certain the eviction was suspended and making use of the dozens of people concentrated around the home, the PAH sets out as a demonstration to City Hall or district. We use public pressure, the visibility generated when stopping the eviction and the media accompanying us to demand that some municipal official receives us to make concrete commitments regarding this particular case. In general, this makes it possible for opening up channels for communication/intervention for other similar cases. Apart from the local administration, it can also raise issues at the regional level and, of course, put pressure on the financial institution.
If you are unable to stop the eviction or see any hope for moving forward with it and have no place to go, then you are left with the possibility of reoccupying the house. This is an action that more and more people do every day, not only because it's the only way to have a home but a form of public denouncement of the senselessness of leaving needy families on the street while banks hoard away empty homes for future speculation. Obviously, this action may involve legal risks, including criminal ones. What happens in most cases is that you start a new procedure that, months or even over a year later, ends with eviction. Time spent within the house gives you a home and allows you the opportunity to put more pressure on the financial institution: you leave the house voluntarily if they cancel an illegitimate debt. On the other hand, in some cases, judges begin to show signs of understanding the social reality behind these occupations. In the case of the judgment file of criminal proceedings, known as "Building 15O" in Barcelona, the judge did not only file, but the judgment’s wording also condemned the bad behavior of the financial institution that owned the building.
Useful resources
Document on the amount of payroll immune from seizure. Available on the PAH website. This document is useful for calculation the maximum amount of family income that the bank can take from your account.
Document for requesting cancellation of debt by the financial institution. Also available on the PAH website.
Document for requesting that the debt not be executed. There is a form available on the PAH website that outlines favorable rulings that have occurred so far and inviting the judge to interpret the law as he sees fit when handing out sentences.
Resource for requesting postponement of the eviction. There is also a form available on the PAH website. You must present this appeal and also the one above it to your lawyer. If you don't have a lawyer or, he refuses to do it, go the court and insist that they accept it in writing. If they want to, they will take it.
Social work of the PAH. In the case that you cannot prevent the eviction, the Administration doesn't offer you decent alternative housing and you are thinking about the possibility of reoccupying the home, get in contact with the PAH closest to you.
To recap: however complicated your situation is or advanced the process, remember the basic lesson that we have learned from our experiences over the last three years. When everything is lost, then there is everything to gain. Dozens of cases, where it seemed impossible to come to any solution, won through much perseverance and solidarity of hundreds of people who are permanently mobilizing within different PAHs throughout the country.
Contact information for the PAH
pah@afectadosporlahipoteca.com www.afectadosporlahipoteca.com
Tel.: 667 662 756
In the "Contact Us" section you will find the nearest PAH.
Datos de contacto de la PAH:
Contact information for the PAH
pah@afectadosporlahipoteca.com www.afectadosporlahipoteca.com
Tel.: 667 662 756
En la sección «Contáctanos» de la web encontraréis vuestra PAH más cercana.
In the "Contact Us" section you will find the nearest PAH.
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