When can a bank start foreclosure proceedings? What options do I have if I can't pay and don't want to be evicted? If I take advantage of the second chance law, can I keep my home? We answer these and other key questions about foreclosure.

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According to INE figures, foreclosures on primary residences have increased by 84% in the first quarter of 2021. The economic difficulties that many families are experiencing due to the economic crisis aggravated by the pandemic are reflected in figures such as these. Data that show that the palliative measures have not been enough.

Measures such as the mortgage moratorium that allows temporary flexibility in payment conditions, the line of loans guaranteed by the Official Credit Institute (ICO) for borrowers, among others.

It is important to clarify that a foreclosure does not correspond exactly to an eviction. Through foreclosure, a lender (generally a bank), in the event of non-payment of the amount lent, is compensated with the property that was given as collateral for the payment. Either because it is acquired by a third party at auction and the debt is collected or because the property is awarded in payment of the debt.

The foreclosure may end in an agreement between the parties, such as a new deadline for catching up or a dation in payment. When there is no agreement, the process ends in court and it is the court that can order the release of the person living in the home, i.e. eviction.

When can a bank start foreclosure proceedings?

As established by the Supreme Court in September 2019, there is a minimum of 12 months of non-payment or 3% of the capital owed, if the loan is in the first half. In the second half of the loan, these amounts increase to 15 defaults or 7% of the capital owed.

What are my options if I can’t pay and don’t want to be evicted?

By planning ahead, there are ways of managing a situation of this type that can give us more room for maneuver.

The second chance law in cases of individuals or bankruptcy proceedings for legal entities are tools that can help to avoid borderline situations and force debt negotiations.

If I take advantage of the second chance law, can I keep my home?

It is necessary to consider each case, the value of the property, the amount of the debt, and whether there is a way to meet the negotiated payments in order to answer this question.

In the case of regular housing, it is possible to apply for a social rent in the occupied property if the requirements are met after a foreclosure.

The time factor is also relevant for non-housing properties owned by legal persons. Proceedings initiated prior to the declaration of insolvency that do not involve assets related to the professional or business activity of the insolvent party will continue to be processed.

This is when good planning of personal assets is key. Decisions such as “putting the house in the name of the company” can lead to scenarios in which the business goes bankrupt and drags down the family assets and the habitual residence.

Situations that can be avoided or minimised if you follow the advice of a good professional. Don’t hesitate, contact us.


Photo by Erda Estremera on Unsplash

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