More Time Bombs For Euro Property Owners?
I was reading a round up of news stories over the weekend and came across a couple of disturbing articles regarding foreign mortgages and repossessions.
Irish Loans Follow You
Lets start with Ireland. As we all know, Ireland has been hung drawn and quartered by their indiscriminate lending which was handed out willy-nilly to builders and property buyers during the ‘Celtic Tiger’ years. Irish property law states that a mortgage debt will follow you, even if you yourself are declared bankrupt. This means that for huge portions of Ireland’s middle classes their only route out is to continue working to service a mortgage that could be to a bank which in itself has disappeared by the time the loan is eventually paid off.
Spanish Banks Play Dirty With Obscure Laws
Even more worrying than the Irish situation is a potential time bomb for foreign owners of Spanish property. Those falling behind with mortgages on holiday homes in Spain are in for a very nasty shock. In an article from the Daily Mail this weekend it seems that Spanish banks are using European Enforcement Orders (EEO) to take control of other property owned in England in lieu of a debt owed on Spanish property!
The order can either force you to sell now, or the bank can wait until the market picks up and force the sale later. The EEO effectively makes the UK local county court to impose an interim order against the owners (a bit like a 2nd charge). In Spain, when you sign the mortgage documents, you give up the right to contest the debt. The courts take this as legal evidence that you agree to the claim (because you signed away your rights to contest it). Cases are now being fought in the UK courts with distressed owners trying to save their UK homes. If the owners are forced to sell, the UK bank gets first hit at the debt, and any further profit goes back to Spain against their debt. (What an evil smelling mess!)
An EEO is meant to be used for uncontested claims in civil cases across EU borders, but evidence has emerged that Spanish officials have stretched the meaning of ‘uncontested’ to allow banks to fast-track claims on UK property.
All these new facts coming to light makes me wonder what other time bombs are waiting to explode in the foreign property market. How many people were aware of these rules when they signed up to buying a holiday home in what were considered to be ‘safer’ European destinations? Who could have predicted the lengths that banks will go to to claw back their own badly placed loans? And this comes at such a high personal cost to so many.
Please note: Some excerpts taken from Daily Mail article:
UPDATE: Since writing this it has been estimated that French property prices could fall by as much as 40% due to their own banking and economy problems.