Main points of the Mortgage Reform

Mortgage law
Image source universidad.ahorro.net

The recently approved mortgage reform is like touching a pressure cooker without burning yourself. The events derived from the crisis, the evictions, as well as the problems of a political nature have accelerated the appearance of this reform that (I believe) is not going to leave many people satisfied and that as of today, the possible beneficiaries of it suppose 3% of those affected. I briefly comment on the main data that exist in this regard.

  • Suspension of evictions . If you are from the new social branch called " of special risk of exclusion" (if you have children or a dependent person in your charge) your mortgage launch process, known as eviction , will be suspended "immediately" for 24 months. Here I put a technical economic data that informs that the owner or holders of the mortgage must be unemployed , with an income that does not exceed three times in IPREM (Public Indicator of Multiple Effects Income) and whose mortgage payment has multiplied in the last four years for, “at least”, 1.5 times with respect to the income of the family unit.

  • Dation in payment . This point is actually a fallacy of mortgage law. Recall that civil movements require in most cases is the retroactive dation in payment . Non-payment, in most cases, as well as belonging to this new segment of the population called " of special risk of exclusion " comes in most cases from unemployment . Unemployment is the main responsible for most of the problems of non-payment. For that same group of “especially vulnerable” mortgage debtors, if after a year from the suspension of the eviction it is not possible to reach an agreement that is “viable” for their economy, the financial institution “will be obliged” to accept the delivery of the home habitual, thus being "definitively" canceled the debt . I wonder, on what terms can a viable agreement be reached between a debtor and a bank? Who would regulate these agreements? There are more questions, but this point should still be based on the experience of the next few years.

  • Appraisals . Before the bursting of the real estate bubble in 2008, when a mortgage was requested, it was common for the mortgage manager of the financial institution holding the loan to negotiate with the appraiser the amount that should be contributed. This was the stone to build the future ruin, a property that could actually only have a market value of € 100,000 could easily be planted at € 150,000. Today, as they say, "these muds come from those rivers." Nobody (neither the DBE, nor the ECB, nor the current government) bothered to stop this, which was “common knowledge”. Today and thanks to this reform in the mortgage law, new regulatory limits are established for appraisers , that is, they must appraise at real market value and will be verified by the Bank of Spain , in order to reduce their dependence on the financial entities (this will have to be seen). Likewise, banks and savings banks will be obliged to accept any appraisal provided by the client, provided it is approved . This point has always existed, what happens is that the bank received premiums for entrusting the appraisal to a specific company and did not want the appraisal of another even though it was approved.

  • Unfair terms. Judges will be empowered to, in case of appreciating the existence of “abusive clauses” in mortgages, to prevent an eviction and even decree its inadmissibility if they consider that the origin of the release is flawed by them. This, from the point of view of the consumer, is curious: it turns out that you signed a mortgage before a Notary Public and this did not indicate in most cases that your mortgage had “abusive clauses”. What's more, the judges have been applying rises with this type of clause for years and they have never risen like now against this type of abuse (because it is from the bank). It is also possible that they order to continue the execution, but without applying the conditions that they have considered excessive.

  • More information on the “fine print”. This aspect is very striking, since in reality in this type of contracts there should never be "small print", it would be theirs if it disappears, but since apparently there will still be those who subscribe a mortgage whose maximum repayment term is fixed at 30 years, they must be informed (both by the financial institution and by the notary) of their “details”, that is, if they include clauses (floor / ceiling, interest links to foreign currencies or others) that may generate extra risks , whose "understanding" must be expressly declared by the interested party. This in the end, in most cases, will not be done by the mortgage manager, lack of time, rush to buy, etc. and it will make the client when he sits down at the notary to sign the sale to hear in most cases “Are you in agreement, yes…. then sign "

  • Minimal defaults. The ceiling of unpaid mortgage payments in which a debtor may incur before the financial institution can start the execution of the loan and, in the last case, the eviction of the property is raised to three .

  • Interest on late payment. They are limited to a maximum of three times the legal interest of the money (which would be a cap of 12% today). In addition, those cannot be capitalized together with the main part of the debt and, in case of execution, they will be the last ones that the debtor will have to face.

  • Auctions To increase the presence of potential buyers of foreclosed homes (already scarce in itself), the guarantee required from bidders is reduced , auctions are given more publicity, in addition to encouraging extrajudicial sales, and the period is extended to 40 days. deadline to materialize the offers. Up to 2% of the debt will also be forgiven to those debtors who collaborate in these operations. If the bid is void, the financial institution will not be able to award the property for less than 70% of the appraised value, so that it will always pay (at least) 52.5% of its original price “certified” by an approved appraiser and has not expired in accordance with the deadlines set by law.

  • Takedowns and capital gains. Once evicted, if the debtor satisfies 65% of the total that he had left to pay before five years (or 80% in 10 years), he will achieve that the rest of the debt is forgiven . For their part, the entities must dedicate 50% of the capital gains they obtain if they manage to sell the adjudicated property within 10 years to reduce this outstanding amount.

  • Code of "Good Practices". Breaches of this code, in force for one year, will be considered serious infractions . Regarding the restructuring of pending payments, the debtor may present the plan that he deems most appropriate and, if it is rejected by the financial institution, it must justify it.

We can only hope that these changes are welcomed and, I repeat, experience and time will prove it right or take it away from this new law. We will be attentive and we will keep you informed.