Published December 10, 2012
MADRID – Irene Gonzalez is desperately waiting to hear if she'll benefit from an emergency government decree that protects Spaniards such as her from being evicted for failing to make their mortgage payments.
Gonzalez, 45, has had her full-time job reduced to part time at the small air-conditioning company she works for. She's a single mother caring for two children in a cramped apartment in a working class neighborhood that she and her ex-husband bought in 2001, when the nation was basking in a strong economy and a seemingly endless housing boom.
She says she can't afford the mortgage payments and her ex-husband, who always handled them after they divorced, stopped paying several years ago when construction business soured with the bursting of Spain's building bubble.
Even if Gonzales is granted a two-year reprieve from eviction, Spanish law still mandates that she and her ex-husband will still owe almost €140,000 ($183,000) on the mortgage, court fees and interest for the rest of their lives. If they don't pay off the debt, their children — now 13 and 8 — inherit it.
Spain has endured a wave of foreclosures that have generated protests and at least two recent suicides by people about to be ousted from their apartments and houses.
"What I want to do is just give the house to the bank and be free of the debt," the 45-year-old Gonzalez said. "I've told my parents I want to renounce my inheritance because the bank would get my part."
Since issuing the emergency decree, which will protect Spanish families with an annual income of less than €14,400 after taxes, the government has been under increasing pressure to come up with reforms to its mortgage system. Activists have been lobbying for an insolvency law that would allow those who have defaulted on their mortgages to simply turn in the keys to their homes as they do in countries like the United States, freeing them from mortgage debt.
In neighboring France, for example, if someone cannot pay their mortgage, there is an official body that acts as an arbiter between bank and homeowner to work out the loan. If that process fails, the bank will take the homeowner to court and get permission to auction off the house. Expelling the former owners takes a second trial.
For the first time this month, Spanish voters cited foreclosure evictions as one of their main concerns, according to a recent poll by a government institute. Meanwhile, some Spanish judges outraged with being forced to turn people out on the streets are increasingly refusing to order evictions. And several mayors are threatening to withdraw municipal funds from banks that evict residents, while other city councils are designating their communities "eviction-free zones."
Every Tuesday night, a conference room in Madrid is packed full of people seeking advice from the Platform for Mortgage Victims, an anti-eviction pressure group that has started chapters across the country. The worried homeowners, who owe amounts ranging from tens to hundreds of thousands of euros on their mortgages, are desperate for help and advice after receiving court notices that their homes have been auctioned for a fraction of the purchase price and they'll soon be kicked out on to the streets.
Teary-eyed, they clutch court paperwork and describe how banks freely granted loans for 100 percent of the cost of the home they bought during Spain's economic boom that started crashing in 2008, and has only deepened since. Some are grandmothers who had paid off their houses decades ago, and then tried to help their children by putting up their property as collateral for a loan — and now face eviction because of non-payment by the children. Many are immigrants who arrived in Spain seeking a better life only to see the economy turn sour.
Before the financial crisis hit Spain in 2008, the country was on an extended building boom lasting nearly a decade. Banks lent money freely, frequently offering mortgage applicants more than they said they wanted and often encouraging borrowers to take on more mortgage debt for restoration projects and new cars. But home prices have crashed more than 30 percent over the last four years and the lending market is virtually frozen.
People who bought homes at inflated prices during the boom can no longer unload them. And to make the situation worse, banks are rarely giving mortgages unless it is for foreclosed properties that are already on their own books, said Carlos Bardavio, a Madrid-based lawyer with Hogans Lovell International LLP who specializes in Spanish real estate.
"Right now the real estate assets are not liquid," he said. "People find themselves with property they cannot pay the mortgage on or sell, they lose it, and they still owe money to the bank."
Exactly how many evictions of people from their homes have happened since the crisis hit Spain and burst its property bubble in 2008 is unclear. Government statistics do not break down how many evictions are for first residences, second homes or property like small warehouses or apartments — which many Spanish families have traditionally purchased to rent out for extra income. Nonetheless, judges have issued more than 350,000 court orders for eviction following foreclosures since Jan. 1, 2008, and anti-eviction activists refer to that figure when they talk about how many people have lost their homes.
Data from the Bank of Spain clearly show that the total value of mortgage defaults has skyrocketed from €4.1 billion in 2007 before the crisis hit to €19.1 billion for the March-June period this year; the percentage of doubtful home mortgages stood at 0.7 percent of overall home mortgages in 2007, and is now up to 3 percent. Activists say Spanish banks can initiate foreclosure proceedings after mortgage holders fail to make three months of payments, though Bardavio said there is no standard rule and that they usually wait until eight to 10 payments have been missed. The entire process ending in eviction can take between six months and several years.
"Traditionally, Spanish foreclosure rates have been very low and the family network was strong, you always had some family member who would help you pay the mortgage so you could start over," said Carlos Vergara, a financial management professor at Madrid's IESE Business School. "But now the uncle who might have helped you in the past doesn't have the savings he used to."
Spain's Economy Ministry estimated recently that only between 4,000 and 15,000 people were evicted from 2008 until now from primary residences they own, but the estimate was based on data supplied from the banks, and activists dismiss the figures as an attempt to downplay the size of the problem.
"How can it be so few people when we have so many coming to us every week asking for help?" asked Rafael Mayoral, a lawyer for the Madrid chapter of the Platform for Mortgage Victims. He said some evictions are being halted because of the decree, but said many families won't be saved because their income is higher than the €14,400 limit.
Protests have mushroomed this year throughout Spain, where anti-eviction demonstrators advertise upcoming evictions and the street locations on Web pages to encourage people to show up at the apartments and try to prevent court agents escorted by police from carrying them out. The crowds range from dozens to hundreds and some protests have resulted in clashes with police and emotional scenes as people are forced to leave their homes.
The Spanish government plans to introduce new mortgage legislation in coming months, and last week ordered the government statistics agency to start tracking foreclosures of primary residences.
Activists have been calling for a U.S.-style system whereby those who default on their mortgages simply give up their homes and file for personal bankruptcy, leaving their credit rating in tatters but freeing them from mortgage debt.
But the Spanish Banking Association warns that the interest rates for business and individuals would shoot up if the activists' plan was adopted.
"Spain's mortgage system didn't create any problems," the association said in a statement, stressing that most Spaniards are still managing to make their mortgage payments. "The economic crisis and rising unemployment are the reasons why many Spanish families can't keep up on their mortgage payments."
Gonzalez' ex-husband used to pay the mortgage on the house she still lives in with their children. But he stopped paying several years ago after his small construction business stopped getting work and she says she's never made enough money since then to pay. She doesn't speak much with him since their divorce. But her daughter who sees him every other weekend says he's thinking about simply leaving Spain and going back to his native Peru because he can't find work.
Stacked in the hallway outside Gonzalez' apartment are dozens of cardboard boxes, ready to be used to pack up belongings if authorities show up to make her leave. Both children know the eviction could be coming, and the uncertainty over where the family would live has turned the daughter into a compulsive eater, while the son wants to know where he will keep the toy cars and books neatly arranged in his room.
Gonzalez is on a waiting list for a cheap apartment to rent from the Catholic charity Caritas, but if the eviction comes before that, she plans to move into the apartment of a friend near her childrens' school. Another possibility could be a cheap rental from a pool that the government is setting up for bank-owned apartment blocks among the 700,000 Spanish houses and apartments now sitting vacant.
"I feel totally defenseless," she said. "Before the crisis you could ask friends or family for help and then give what they loaned you back, but now you can't."