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How does the foreclosure process work?

Civil Law

Foreclosure is a legal procedure that takes place when a borrower defaults on a mortgage. When a mortgage loan is taken out, the property acquired constitutes the guarantee of payment, which means that, in the event of non-payment, the lender can initiate this procedure, which entails the possible seizure of the property.

Before starting the procedure, it is necessary for the bank to give the debtor at least one month's notice of the amounts due before the foreclosure procedure begins (the idea of this is to ensure that the debtor is able to pay the amounts due). The bank must also check the application of the early repayment clause as it is only entitled to terminate the contract and request the full repayment of the loan if the requirements for this are met:

- Default occurs in the first half of the mortgage loan and amounts to 3% of the initial credit or 12 instalments.

- Default occurs in the second half of the mortgage loan and amounts to 7% of the initial credit or 15 instalments.

When the default has taken place and the minimums imposed by the early repayment clause have been reached, the bank can proceed to formalise the enforceable claim. Once the claim has been admitted for processing, the debtor will be notified and required to pay the amounts owed plus accrued interest.

Judicial foreclosure proceedings 

In order to justify the existence of the mortgage, a certificate of encumbrances is requested from the Land Registry, which specifies all the encumbrances on the property. Once this is obtained, an order for the sale of the house can be issued, which will generally be done by public auction; this must be published on the notice board of the Town Hall, the Land Registry, the corresponding Court and in the Official State Gazette (BOE). On the appointed day, the property subject to mortgage will be auctioned to the highest bidder through the BOE's virtual auction portal. The initial price of this auction will be calculated on the basis of the price established in the mortgage contract and may not be less than 75% of the appraised value of the property.

The home will be awarded to the person who submits the highest bid, provided that this bid is at least 70% of the launch value. In the event that the bid is lower or if no one bids for the property, the bank will have the possibility of keeping the property for a value equivalent to 70% of the launch price or for the amount pending payment, in the event that the latter figure exceeds 60% of the appraised value.

Finally, the buyer will be able to register the property in the Land Registry and the debtor will have to vacate the property. The bank will also collect the amounts owed; if there is an excess between the price paid for the property and the debt, it will be awarded to the debtor.

Can I avoid foreclosure or stop foreclosure if it has already started?

There are various alternatives to try to avoid the foreclosure process. If it is your primary residence, one option is to stop the foreclosure, which consists of paying the outstanding instalments together with the corresponding interest.

Another possibility is to seek an agreement with the bank, which could involve restructuring the debt in exchange for a payment commitment. Such an agreement could extend the repayment period, which would reduce the monthly instalments, but could result in higher interest payments in the long run.

If the foreclosure process has already started, it is essential to check whether the mortgage contract contains unfair terms. This process must be carried out within 10 days of the foreclosure notice. If abusive clauses are discovered, legal action can be taken against the bank.

Once the auction and foreclosure have taken place, the only way to try to avoid eviction is to obtain a judicial or notarial certification proving that you are part of a vulnerable group. This could allow you to live in the property for a period of two years, albeit on a rental basis.

In conclusion, foreclosure is a complex legal process that affects many families. In this situation, it is crucial to be well informed and take the right steps to protect your interests. If you have any questions and are involved in a foreclosure proceeding, do not hesitate to contact us.

Civil Law

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