Spanish banks resist call for mortgage law reform

For more than a century, Spanish law has determined that if a person borrows money to buy a home, they can only be freed of the debt when it is repaid. Even in death, the debt is not cancelled. As the country enters another year of recession, calls are mounting for the system to be relaxed. But the banks worry this would damage their access to funds.

Take Francisco Lema, an unemployed 36-year-old builder, who dropped off his 8-year-old daughter at school on February 27 and returned to the family’s rented fourth-floor flat in the Andalusian city of Cordoba.

The house he built himself had been repossessed, leaving a debt of 22,000 euros ($29,000) on the mortgage he took out to cover building materials, said family friend Maria Jose Vadillo, an activist for Stop Evictions Cordoba, a pressure group. His parents had stood guarantor for part of the loan. Now he was struggling with the repayments, said Rafael Blazquez, another activist with the same group. His wife, who was out, returned home to find his body on the street, covered with a sheet.

Everything pointed to suicide, a police spokeswoman said; a witness had called to say Lema had jumped off the balcony. His wife declined to be interviewed. Of the two banks involved in the case one, Kutxabank, confirmed Lema had a mortgage with a savings bank it owns.

The other, Caja 3, did not respond to inquiries. Activists and police say Lema was one of four people who have killed themselves this month in Spain because of forced evictions and the consequent debt loads. “The foreclosure process here is very tough,” says Jose Garcia Montalvo, economics professor at Universitat Pompeu Fabra. “The law is brutally clear and it’s not interpretable case by case.”

Mariano Rajoy’s conservative government has taken steps to ease the burden. In November, it said it would suspend evictions for two years for vulnerable homeowners who can no longer pay, including those with small children, the disabled and the longterm unemployed. Last month, the finance minister announced more measures including partial debt-forgiveness for some defaulted borrowers who pledge to repay a certain amount of the remaining debt within five years. But lawyers, activists and opposition politicians want more.

Thousands of Spaniards bearing placards and banners took to the streets in 50 cities around the country on February 16 to protest against forced evictions. Spain’s three main judge associations have said the government has not done enough, and a petition with close to 1.5 million signatures this month persuaded parliament to debate the possibility of cancelling mortgage debt once a home is handed back to the bank.

Spain’s eviction law is in breach of European law on consumer protec- tion by not offering homeowners a legal chance to argue against eviction until after they have been thrown out, Juliane Kokott, the Advocate General of the European Court of Justice, has said. The Court ensures the application of European Union law across the member states. “The mortgage law is missing a social dimension,” Fernando de Rosa, a conservative judge with strong links to the ruling People’s Party (PP), told Reuters. “It’s too strict in the relationship between the bank and the borrower.”

Spain’s banks, which have already been bailed out by Europe to the tune of 40 billion euros, are lobbying against any change. Moody’s said earlier this month that easing the legislation would diminish borrowers’ incen- tive to keep up with mortgage payments. Any change in the law eroding investors’ protections would undermine confidence, the agency said.

In the United States, if you default on your mortgage you can often cancel the debt by handing back the house to the bank, and hope the bank agrees to accept it in lieu of the outstanding sum. In Britain, you can write off the liability through personal bankruptcy: your credit will be damaged for a time but you can wipe the slate clean. In Ireland, which suffered a similar housing boom and crash to Spain, the government has made it easier for people to be declared bankrupt, and proposed new routes for mortgage holders to discharge their debt.