Spanish Property -Banks, how to avoid them repossessing your UK property? A 6-Step Guide

March 29, 2011

Recently a little-known ruling called the European Enforcement Order (EEO), has started to come to the fore. In fact, the EEO has been around since 2005, but only recently been dusted down and used as a potential tool against defaulting, overseas, Spanish property-owners.

What is an EEO?

Spain Property EEOTheir original purpose, was to enable cross-border, secured-debt, recovery, in other words, a European platform to claw back unpaid, mortgage debt in one country through  the legal process in another.  Until now, there has not been much controversy surrounding EEOs, however, as banks try to improve their defaulting loan books, they may become higher profile.

How can buyers protect themselves, should the use of EEOs increase?

1)   Speak to the Lender

Common-sense dictates that, it is better all-round for an overseas property buyer, facing financial difficulties, to speak to the lender and come up with an agreed and revised financial plan, if this is possible.

2)   Contest Early

If that option is not workable, Spanish property owners or buyers, should contest any claim early on in the process and seek appropriate legal advice, to ensure all the necessary procedures (designed to protect the individual’s interests) have been followed.

3)   Check Protocols

Check the correct protocols have been followed – the court proceedings in the Member State of origin must be conducted correctly, so  Spanish procedures have to be followed before an EEO can get to the UK

4)   Contest Properly

Ensure the arrangements required to contest the claim (deadline for contesting the claim, consequences of failing to object, etc.) are clear and communicated properly. The claim needs to be contested in the country of origin, or have been agreed to.

5)   Insist on Review in Exceptional Cases

Be aware the Member State of origin, in this instance, Spain,  must provide for a review in exceptional cases.

6)   Be Aware of Enforcement  Limits

The court in the enforcing Member State (usually the country where the debtor resides e.g. UK) may, subject to certain conditions, refuse to enforce a judgment, if it is irreconcilable with an earlier judgment, given in any Member State or in a third country. In certain cases, it can also limit enforcement

Remember, debt recovery is on the whole likely to be limited to Spanish assets, as the litigation process is lengthy and costly to bring to the UK, both for the banks and developers. What’s more, recent Spanish Court decisions, whilst not legally binding, have an influence:

  • “Navarra Appeal Court” decided that if a Bank repossesses a Spanish property, for a value much lower than the debt, (negative equity) then it has no right to further claim against the debtor´s assets, (which might have been the case normally). The judge, in effect said the bank must have decided the property was at a sufficient value, to have lent against it, in the first place.
  • Similar decisions have been reached in the Provincial appeal Courts of Baleares and Cadiz, so giving weight to the judgment.

These judgments can be taken into account if UK courts have to decide whether or not to refuse an EEO.

Posted by Louise Reynolds, Property Venture® , with contribution by Costa Luz Lawyers

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