Imagine you are a Spanish homeowner who can no longer meet your monthly mortgage repayments. You have two choices: either sell the property, repay the loan, and pocket whatever difference remains — or do nothing and wait until the bank eventually forecloses.

In many countries, including the United Kingdom, the lender effectively takes the risk that the property is sufficient security for the loan. If the borrower defaults, the keys can be handed back and the matter is, in practice, finished. If the property is sold and there is a shortfall, the lender often writes it off. In some jurisdictions, personal bankruptcy makes further recovery either impractical or impossible. The debt dies with the property.

In Spain, things work very differently.

Here, the system known as dación en pago — where handing the property back clears the debt — is almost never available in practice. If a homeowner is evicted and the bank sells the property, any shortfall remains payable by the borrower. Not just for a few years, but potentially for life.

Worse still, the outstanding amount is not frozen. Banks add penalty interest, default interest, legal costs and fees. The debt continues to grow. Other assets can be pursued. Wages can be embargoed. The obligation does not end when the property is lost — it merely changes form.

Once the property is in the bank’s hands, the bank alone decides the sale price. If it sells cheaply, the remaining balance is still owed by the former owner, together with interest. There is no incentive for a borrower to allow this to happen — and every incentive to sell the property themselves first, even at a painful loss.

This single fact explains something that surprises many buyers: Why there are so few bank-owned country properties in Andalusia.

Movement For Change

There is social pressure to introduce non-recourse mortgages and changes have been made. In 2012, the Code of Good Practice was introduced to help vulnerable borrowers. The following year a law was introduced giving stronger protection to debtors and introducing measures to control evictions. That same year the Court of Justice of the EU found that Spanish law effectively prevented judicial control over unfair mortgages and pushed the country to strengthen consumer remedies. In 2015 Second Chance was introduced which allowed qualifying individuals to discharge debts under certain conditions. In 2022 the government went much further reshaping procedures and even allowing debtors to retain certain assets under a payment plan.

Why Spain Hasn't Fallen In Line With Other Countries:

There are a number of reasons:

• The foundation principle of obligations: In Spain's case it wouldn't merely be a small change to mortgage law but it would cut across the principle of universal liability built into the country's private law.
• Spanish banks mortgage funding depends on market confidence: portfolios of mortgages have traditionally been used to raise funds. If there was less security around creditor repayments, the cost of raising such money would increase. It would also have a knock-on effect in terms of higher interest rates and a lower loan-value ratio.
• Strategic default concerns. In a market with falling prices, holders of non-recourse mortgages might simply decide to walk away of there was sufficient negative equity in their property, which would push the losses onto the lenders, causing instability and , possibly, bank failures if the fall in prices was sufficient.

Effect On The Housing Market

The practical consequence of this system is simple and rarely understood: Homeowners who find themselves in difficulties will do everything they possibly can to sell their property, even at a loss, because their liability is likely to be far less than if the property is repossessed. So, those properties that reach the banks' portfolios are, basically, pretty unsaleable.

I recently researched three of the major banks portfolios with interesting results. I was looking for cortijos or country houses, basically any rural property in Andalusia that fits within our criteria. As you will see, I was very disappointed.

Banco Sabadell - 40 properties on offer, 0 rural properties.

Banesto - 177 properties on offer, 0 rural properties.

Caja Rural - 386 properties on offer, 2 rural properties.

Those 2 rural properties were a 5.600 m2 plastic greenhouse in Rabite and a house in Guëjar Sierra with an electricity pylon right opposite the lounge window!

The vast bulk of unsold properties are apartments, unlikely to be of interest to our clients, together with a fair number of houses on urbanisations, plus a smattering of the oddest properties you can imagine from lock-up garages to industrial units in out of way places.

The spectre of repossession, it seems, has barely touched the world of country property in Andalusia.