Default on a mortgage in Spain? Lose Your House, Keep the Mortgage!

by Justin Weinger on July 22, 2011

foreclosures in spain, spanish foreclosures, foreclosures in american, default in america, default in spain

Foreclosures in Spain seem a lot more harsh than in America. Image via Wikipedia

For those of us here in the United States who have long complained about the housing market and being stuck in an unaffordable upside down mortgage, you can thank your lucky stars you didn’t make your financial mistake in Spain.

(Full disclosure – with the exception of people who ran into mortgage problems due to expensive medical emergencies and conditions – I believe that people who are now stuck in mortgages they can no longer afford have done so on their own accord. Home ownership is not a right. If you didn’t understand your mortgage you shouldn’t have signed on the dotted line. If you did understand but thought you could “grow into the payments” and now can’t, again, that’s your problem, not the bank’s and not the government’s. It’s yours and yours alone.)

According to an article published on Yahoo! Finance there are terms in many mortgages held in Spain that if a borrower defaults, not only do they lose their home, but they are also required to pay back part, if not all, of the borrowed money:

Inma Rodriguez lost her job, and now that she’s defaulted on her mortgage, she’s about to lose her home. But the nightmare doesn’t end there: Once creditors kick her out, she’ll still need to pay back the money she borrowed to buy her house.

It’s a mortgage anomaly seen in much of Europe, but especially acute these days in Spain, a nation grappling with an economic crisis triggered by the collapse of a real estate bubble. Since the 2008 property crash, more than 300,000 have been hit by the potential double-whammy of eviction and mounds of mortgage debt.

“It hurts so, so much,” says Rodriguez, choking up as she looks up at the ceiling of the home where she’s lived for 30 years and raised two children.

Under the terms of her contract, Rodriguez will probably have to pay almost half of her euro200,000-plus ($290,000) bank debt, plus court costs and penalties after she leaves — in stark contrast to the U.S., where defaulters can return the keys to the bank and walk away from their debt.

The article goes on to say that 98% of mortgage holders in Spain are current, so this isn’t a wide-spread problem. That being said, for those who are affected, this stands to be a very serious, life-long financial problem.

For as harsh of a stance I took above, I know we all make mistakes, and one of the great things about America is that when you make mistakes, you face the consequences, but are often granted some leniency. For example, in America, much, if not all, of the mortgage debt is forgiven in exchange for your dramatically reduced credit score. Over time, your credit score will increase assuming you don’t get yourself back into a financial mess.

I certainly like this system much better than what’s going on in Spain.

What are your thoughts? Which system is better? Which system is more fair? Leave your comments below!

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