JUDGES can now prevent mortgage lenders from repossessing properties where 'abusive' clauses are included in the loan contract, and grant a two-year stay of grace on repossession for homeowners considered to be 'especially vulnerable'.
The new mortgage and repossession law – which came into force yesterday (Wednesday) after being approved in Parliament a week previously – limits interest rate hikes on repayments made as a penalty for defaulting on a monthly quota, and also forces banks to set a minimum reserve when auctioning off properties they have already taken back from their owners.
Certain mortgage contracts include a minimum auction reserve, or subasta clause, which is fairly close to the amount of the loan, whereas others give a much lower reserve or none at all.
The latter scenario has meant until now that a lender can auction a property for just one euro, meaning the defaulting owner remains liable for the full amount of the debt, including administration and legal fees plus interest.
But the more a repossessed property fetches when the bank auctions it, the less the debt the homeowner is left with.
Those facing repossession who are considered 'vulnerable' and automatically permitted a two-year moratorium include single parents with two dependent children or with one child under three or one or more disabled children, large families with three or more children, parents with at least one disabled child who needs their constant care, victims of domestic violence, or homeowners who are unemployed and whose dole money has run out.
In these cases, the maximum family income cannot be more than 1,595.53 euros a month, which is three times the minimum wage.
The mortgage law allows for reduction of the outstanding debt through waivers where the property has already been repossessed and sold to a third party, and allows for the creation of 'council housing' at a very low rent ranging between 150 and 400 euros a month but capped at 30 per cent of the tenant's income.
Eligible tenants must have been evicted from their homes in 2008 or later, and will be given a rental agreement valid for two years but renewable for a further year if needed.
In practice, the council housing system has already been running for some months and has received 430 requests for the 6,000 properties available.
As for the possibility of handing back to the keys to a property in exchange for wiping out the debt in its entirety, despite clamouring from nationwide pressure groups, this has not been included as an automatic legal right on the part of the homeowner, but is 'strongly recommended' within the mortgage lenders' Code of Good Practice.
This Code has now been made law.
In reality, as a result of the Code of Good Practice, a total of 298 homeowners have been able to return their house keys to the bank in order to cancel the mortgage debt completely.
The change in the law – which is still based upon the original text of February 1946 – was in response to widespread protests and to what has been described as 'a need for emergency measures' given Spain's current economic climate.
