In Spain, homes go, but debts remain
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The real estate and banking excesses in Spain were a lot like those in the United States. Construction boomed, prices rose at an astonishing pace and banks gave out loans just as fast. But those days are over. Spain now has the highest unemployment rate in the euro zone -20 percent -and real estate prices are dropping. For many Spaniards, no longer able to pay their mortgages, the fine print in the deals they agreed to years ago is catching up with them.
Not only are Spanish mortgage holders personally liable for the full amount of the loan, but throw in penalty interest charges and tens of thousands of dollars in court fees, and people can end up facing a mountain of debt. Bankruptcy is not the answer, either. Mortgage debt is specifically excluded here.
"Effectively, you can never get rid of this debt," said Ada Colau, a human rights lawyer. "Other countries in the European Union also have personal debt mortgages, but you can go to the courts and get relief. Not in Spain."
Several opposition parties in Parliament have been pressing for amendments to the country's foreclosure laws. But the government has opposed such changes. Officials say Spain's system of personal guarantees saved its banks from the turmoil seen in the United States.
"It is true that we are living a hangover of a huge real estate binge," said Marcos Vaquer, the former under secretary of the Housing Ministry. "And it is true that far too many Spaniards have excessive debt. But we have not seen the problems of the U.S. because the guarantees here are so much better."
Immigrants who arrived in the boom years have been the most severely affected. Jaime Abelardo arrived in Barcelona from Ecuador in 1999 with the promise of a job. A few years later, he could afford to buy a tiny apartment. But within two years, he was laid off. He now owes nearly 260,000 euros, almost $360,000, which includes about 77,000 euros to cover all court costs, including the bank's, his lawyer said. He bought the apartment for about 220,000 euros; he is unsure of the exact amount. His wife has left him. His unemployment payments are about to run out. "I'm thinking about shooting myself," he said.
An estimated 1.4 million Spaniards are facing potential foreclosure proceedings, according to Spain's consumer protection association, known as the Adicae. In 2007, there were just 26,000.
A recent Standard &Poor's report found that 8 percent of Spain's housing is now worth less than the value of the mortgage; experts believe that figure could rise to 20 percent.
Banks have the right to auction houses in foreclosure. If no buyers appear, the bank can take ownership of the house for 50 percent of its value, according to the estimate either at the time of purchase, or at the current time, depending on what the mortgage specifies. The banks then have 15 years to go after the homeowner.
If the banks initiate proceedings at any point, the clock starts ticking again, experts say. In the meantime, the bank can charge interest on that debt.
Montse Andres Sabate, a lawyer with Ausbanc, a consumer association, says the banks usually charge 5 or 6 percent, but sometimes much more. "We've seen 18 or even 19 percent," she said.
And then there is the matter of guarantors. Bankers pressed many homeowners to find guarantors at the time they took out the mortgages. Now those guarantors face a lifetime of paying off the debts of others. Even their inheritances can be seized by the banks.
Santos Gonzalez Sanchez, the chairman of the Spanish Mortgage Association, says it is the bank's duty to try to collect. "This helps to explain why our financial entities have not gone bankrupt," he said. But advocates here say that Spain's procedures are particularly severe. Last month, even the party of Prime Minister Jose Luis Rodriguez Zapatero joined in voting for a parliamentary motion to slow foreclosure proceedings.
Manolo Marban, 59, of Toledo knew he was in trouble within months of buying a small pet grooming store as business began to taper off. He sold his car at a huge discount to meet a payment, then his wife's gold bracelet.
But he could never catch up. The bank foreclosed on both his business and his house in April. With tears in his eyes, Mr. Marban said, "I will never own anything. I will be working for the bank for the rest of my life."
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