Court Rules “Repossessed Property Covers Excess Mortgage Debt”
January 28th, 2011
In what could be the beginning of a change in Spanish law, a judge in Navarra has ruled that the proceeds gained from the sale of a property repossessed by a bank should be sufficient to clear the former owner’s debt.
Under current Spanish law, mortgage lenders have the right to make a claim on all of a borrower’s assets and not just the home on which the mortgage was based on.
In this case, the borrower had an outstanding debt of 28,129 euros from an original 71,225 euro loan, after the lending bank, BBVA, sold the property in Navarre for 42,895 euros. Once sold, the bank continued to demand mortgage payments and the case ended up in court.
The judge surmised that the fall in value of the property was a direct result of financial mis-practice. “The truth is that the bank was awarded a property which they themselves has valued too highly,” justified the judge.
It was noted by the Navarra court that just a few days previously, the Congress of Deputies has begun to consider a proposal whereby “the secured obligation of mortgages should only be effective on the goods mortgaged, and should not apply to other assets of the debtor.”
BBVA plan to appeal the decision and it should be noted that a regional court’s decision does not set a precedent for other cases, this would require two Supreme court judgments. However, there is a strong prospect that other repossessions will head to court in the hope that other judges rule in a similar fashion.