Properties Under the Hammer: The Consequences of the Pandemic
Unfortunately, the current economic impact of the COVID-19 pandemic on many property owners in Spain is also clearly reflected in Spanish judicial statistics: For example, with regard to the number of consumer bankruptcy filings, which skyrocketed from 1,568 cases in the first quarter of 2020 to 2,531 cases during the same period this year. Or in the case of eviction lawsuits for rental properties, which rose by 17.8 percent. Nationwide, all court-ordered evictions increased by 13.4 percent.
Added to this are mortgage foreclosures, the number of which rose by 8.7 percent in the first quarter of this year compared to the same period last year. This last figure alone is reason enough to outline the procedure for the forced sale of real estate in Spain.
Foreclosure Auction by Court Order
The auction procedure is set forth in the Spanish Civil Procedure Act (Ley de Enjuiciamiento Civil). At the creditor’s request, the court takes action. It obtains from the land registry all extracts pertaining to the property, and enters the order for the forced sale in the registry; it notifies the other creditors listed in the land registry, requesting that they file their claims; and it appoints an appraiser to assess the property.
Highest bids of at least 70 percent of the property’s value are awarded the property
Once all this information is available, an auction date is set with at least 20 days’ notice. If the highest bidder’s bid is at least 70 percent of the appraised and auction value, the bid is awarded to them. If the highest bid is less than 70 percent, the creditor may purchase the property at auction for 70 percent of its value; otherwise, the property must be awarded to the bidder whose bid is at least 50 percent of the appraised value. If no other bid is submitted, the creditor may demand that the property be awarded to him at 50 percent of the appraised value.
The proceeds from the auction are first used to satisfy the enforcement claim. If any funds remain, they are distributed to the creditors in order of priority. Furthermore, all subordinate claims are extinguished upon the award of the bid. With the award decision, the successful bidder can be entered in the land registry as the new owner. The tax authorities also receive their share in the form of real estate transfer tax (ITP) on the hammer price.
Consumer protection assists in mediation proceedings with creditors
Since a foreclosure auction usually results not only in the loss of the mortgaged home for the borrower but also in the total loss of all payments made toward the home to date, steps should be taken before a imminent foreclosure—for example, with the help of consumer protection organizations— all options should be exhausted to negotiate with banks or other creditors regarding repayment suspensions, interest rate reductions, or payment deferrals.
Lutz Minkner looks back on 45 years of work
as a lawyer, lecturer, author of specialized books, and
entrepreneur. Since 1984, he has been a board member of the
real estate company Minkner & Partner
based in Santa Ponsa
