Loans and Mortgages in Hard Times

 

In these times of recession when banks may be reluctant to lend, many people are looking to raise finance from secondary sources such as brokers that specialize in arranging mortgages secured on property and also unsecured loans .     In Spain mortgages or “Hipotecas” are regulated by a series of laws passed since 1946, and Law 2 of 2009 which regulates the activities of brokers who arrange both mortgages and unsecured loans.

If you are looking to raise finance in this way always remember that these organizations are not charities and are in business to make money by raising money for you.

A frequent complaint by clients who come to us after arranging loans in this way is that they have not received as much money as they thought they were getting, but are paying interest on the a much larger amount which is the full amount stated in the agreement.

They find that they have been charged large fees and commissions by the brokers which have been deducted from the loan.   Borrowers with “bad credit” or who need money in a hurry may have to accept this situation, but by the time you have completed your loan or mortgage and it has been registered against your property it is usually too late to complain.

As a minimum you should receive a written statement setting out

·         The total amount of the loan

·         The term of the loan

·         The initial Interest rate expressed as the “TAE” (known to British readers as the APR)

·         Whether the interest rate is fixed or variable

·         The minimum and maximum interest rate

·         If there is a discount off the initial interest rate, for how long the discount will apply

·         The cost of paying off the loan early before it has run its full term

·         The broker’s costs and fees for arranging the loan or mortgage

·         The taxes, Notary fees, and Land Registry fees

·         The actual amount you will be receiving when you complete your loan

If you fall into arrears contact your lender immediately, but they are not obliged to come to terms with you either to reduce your payments or extend the term.   For economic reasons they may want to do so to avoid repossessing property which they then cannot sell on, but some lenders can be particularly hard-nosed.  

Never simply send the keys to your lender if you cannot afford to continue paying your mortgage.  This may provide you with some short term relief, but you will be storing up trouble which may come back to haunt you in the future.

One feature of Spanish mortgages which is often abused is the right of the lender under the Ley de Enjuiciamento Civil (Civil Procedure Law) to repossess and sell off property for only 50% of its valuation, leaving the borrower still liable for the balance to which can be added additional costs, penalties, and fees.
There is a proposal to increase the minimum amount for which a lender can dispose of property to 70% of its value but this has not yet become law.  So long as the lender realizes 50% or more of the value it can look to the borrower for the remainder.  Often many years later a borrower who has had their property repossessed will receive a demand for the shortfall with years of extra interest and penalties.

If you are thinking of borrowing money from any source whether from a bank or other source, and especially through a broker, always make sure that you take independent advice on the terms of a loan before signing the mortgage deed or loan agreement.