No walking away from mortgage debt

On December 14, after the police managed to evict him from his home in the Madrid dormitory town of Leganés, Antonio José Gomes, a 29-year-old Guinean, tried to contact the different utilities with whom he still had contracts. But it was late, and most were now closed. His apartment now belonged to the bank, but the electricity and water bills were still in his name, and until he canceled the contracts, he would continue to receive bills. After walking round Leganés all afternoon, at 9pm he tried to find somewhere to sleep at an apartment owned by a friend from Guinea, Paulino, but there was no room, and he could barely find space to leave his two suitcases. By 10pm, exhausted, he took a bus to a nearby town, where he slept in a cheap hostel for 20 euros. The following day he was able to disconnect the water and electricity in his former apartment. That night he found a bed in his friend's apartment, and slept there.

The law does not take into account if it is winter, if there are children, if it is a permanent address, or if the evicted has an alternative.

Gomes stopped paying his 1,016-euro mortgage in September 2009, when he lost his job. Up to then he had been earning 1,800 euros a month as a laborer on a building site. His income suddenly dropped to 750 euros. He tried to reach a deal with his bank, Caja España, to hold on to his apartment by paying 500 euros a month, but to no avail. He continued paying for a few months anyway, but by that time the bank had begun proceedings against him that would eventually lead to his eviction for non-payment. He stopped paying completely when he realized that he was never going to be able to recover his property.

José Manuel Plazuelo, the director of the branch of Caja España that had arranged Gomes' mortgage, has refused to talk to this newspaper about the matter.

The headline of this story might as well be 476/2010, the case number issued by the court in Leganés that is overseeing Gomes' eviction. The court papers make no mention of the eviction date being 11 days before Christmas, nor that Gomes has two young daughters, or that he has since found a job paying 800 euros a month, part of which he could have used to pay Caja España a refinanced mortgage, thus avoiding losing his home. But at the end of 2010, when the case was passed to the courts, Antonio José Gomes had no hope of holding on to his apartment. Gomes was assigned a duty lawyer. He never managed to speak to her - she never answered her cellphone when he called - but it would have made little difference: she already knew that there was nothing she could do.

Gomes' case will have followed more or less the same pattern as the more than 300,000 repossessions for non-payment of mortgages estimated to have taken place over the last four years by the Plataforma de los Afectados por la Hipoteca (PAH), a nationwide network set up in the months following the collapse of Spain's property market to draw attention to the plight of people who had lost their jobs and could not meet their mortgage repayments. During the first six months of the year, the General Council of the Judiciary, the body that oversees the legal system in Spain, says there have been 32,000. This figure is a 28-percent increase over the same period in 2009, which in turn was a 41-percent increase on the previous year. Unlike in Gomes' case, not all the properties recovered over this period were occupied, and some of those recovered were garages, offices, beach properties and industrial premises. Given that it takes longer to recover properties that are occupied, PAH says that there will be a greater number of evictions that will leave families homeless over the course of 2012 than there were during the previous year.

The housing boom that ended in 2008 left Spanish banks with 315.8 billion euros in loans related to real estate activities in the fourth quarter of 2010, according to the Bank of Spain. That's after they were forced to take on properties and land in return for canceling debt to bankrupt developers.

The PAH has put forward three proposals: that Spain introduce legislation allowing borrowers unable to meet their repayments and facing homelessness to simply return the keys to their property to the lender, a model that exists in some areas of the United States and has become known as "walking away from a mortgage." It also wants the hundreds of thousands of empty homes throughout Spain owned by the banks to be taken over by the state and rented out at low rates; and that the banks give borrowers the option to return their property but allow them to continue living in it paying 30 percent of whatever their monthly income is.

Gomes' lawyer, who has proved impossible to contact, even by this newspaper, would not have been able to do anything, because by the time she became involved there were only two ways to avoid eviction: if there had been a mistake and the debt was not Gomes'; or if he had been able to pay his arrears and the court costs up to that point. In short, it makes no difference if the property being pursued by the bank is a beach apartment, or if the occupant's children are going to have to sleep in the park in subzero temperatures. It's about payment, nothing else. Even though the matter is being heard by a court, the judges proceed as though their hands were tied. There is nothing to assess, no evidence to hear, no statements to be made: it is simply a question of whether the payments have been met and whether the paperwork is in order.

"There is no room to do anything," says Carlos Guerrero, a lawyer who works for MAB Legal & Corporate, and specializes in bankruptcy. "A mortgage repossession is the most unfair procedure. There is nothing to be done. Out of thousands of cases, perhaps one or two are ruled in favor of the person owing money. And of course the debt is not even canceled when the property is repossessed, the full amount of money has to be repaid on top," he adds.

Guerrero believes that the current legislation that permitted Antonio José Gomes and thousands of other people to be evicted from their homes is out of sync with the current reality. "Fifteen years ago, before property prices were inflated to their current levels, repossession was the right approach, for both parties. And there was still some room for negotiation. But with the property boom, we find ourselves facing a law that is no longer appropriate. The property that guarantees the loan is suddenly worth a good deal less than it was when it was bought."

In Spain, say the experts, few people bother to attend the repossession hearing with a lawyer. The reason is simple: there is nothing to be done to stop the process, even if it can take up to 18 months before the property is repossessed and put up for auction. Not that anybody attends the auction, because nobody wants to buy the properties being repossessed. So, the bank ends up reducing the value of the property to 60 percent of its original sale price, and demands that the former owner make up the difference, along with interest and legal costs. Many families not only end up in the street, but are also effectively consigned to the margins of society because they cannot open a bank account, given that any earnings or income they receive must go toward repaying the debt.

Lawyer Javier García, a partner at law firm Uría Menéndez that represents banks and loan companies, tells the other side of the story.

"The fact that the law gives no room for maneuver in repossession cases is because its job is to protect economic and legal systems. The current situation is complex, but it must be remembered that those limits are guarantees for the lender and for the system itself," he explains.

In other words, it is precisely the strict limits put on the loan that makes it possible for the money to be lent in the first place, he says. "The mortgage facilitates the loan. The loan is facilitated because the bank or lender has this mechanism at its disposal, and knows that it can use it if the loan is not repaid. The fewer the guarantees, the more limits on lending."

García accepts that the law as it stands is no longer appropriate to the current situation. "Laws should be made so that they can be adapted to changing circumstances, but we have to be careful that we don't create more problems than we solve by doing so. We need to take all the factors into account before doing so. Laws need to be adapted to changing realities, but we need to tread carefully."

José María Fernández Feijóo, a judge at Barcelona's mercantile court, goes further: "The law is stuck in the 19th century. The judge is carrying out an order related to assets, not people. You shouldn't know the name of the person you are evicting. It is very hard."

Fernández says the current legislation was drawn up at a time when the economic reality was very different. "We are now in an economic crisis, and the law should be adapted to that reality, and mechanisms allowing people in debt to rent or for interest payments to be frozen need to be found. The law is blind to the extent that judges have no idea about the circumstances of the people involved until the commission discovers that there are elderly people or children, or that there is no breadwinner." Even so, the eviction cannot be stopped, he says, though he adds that social services can be brought in to help families with no means.

The judge overseeing case 476/2010 probably didn't know that Antonio José Gomes is married with two small children: Antonia, who will be one in February; and Neuza, who will be three in March. His wife and daughters are staying with relatives in La Mojonera, a small town in Almería.

And the judge would not have known that Gomes was so upset by the eviction, and the presence of the police, that he left behind his coat, along with photographs and other personal belongings. "I don't know what to do. I have no money, and haven't even eaten. When I talk to my daughter on the phone, I just break down," he said.

This summer, in the face of the growing number of evictions and the certainty of many more to come, Fernández decided to contact the European Court in Luxembourg to establish whether Spanish law on repossessing property meets Europe's consumer protection legislation. "Obviously, if money has been borrowed, it must be paid back," says Fernández, "but a series of obligations are included that are debatable, to say the least. For example, having to pay the whole amount of a loan back in one go because one has failed to meet payments for a short period of time." Fernández believes that this aspect of Spanish legislation may breach consumer rights.

The law also allows for a repossession order to be halted if it can be proved that the conditions of the loan are themselves abusive or that the person taking out the loan was deliberately deceived.

At the beginning of last year, a group of Ecuadorians, represented by lawyer Rafael Mayoral, brought a case in Madrid arguing that they had been tricked by their bank when they signed a mortgage deal they would not be able to pay back. They had been granted mortgages of around 200,000 euros, the abusive repayment conditions of which were not explained to them. They now face bankruptcy and ruin. The group brought a class action suit against a company called Central Hipotecaria del Inmigrante, which specialized in sub-prime loans to immigrants working in Spain. The suit also aims to halt the eviction orders issued against them on the same grounds, arguing that the alleged crime committed against them has resulted in irreparable damage.

A judge admitted the suit, and on December 1, the owner of Central Hipotecaria del Inmigrante was arrested. But the same judge ruled that while there were grounds for arresting the owner of the company for fraud, this was not a reason for stopping the repossession order. "The court is not authorized to intervene in executive procedures that are being undertaken before these bodies," he said.

In other words, the law is not only blind to the personal circumstances of the person whose property is being repossessed, as well as to what is happening in Spain, but is also unable to respond to the no-questions-asked malpractice of the property boom.

In the case of the Central Hipotecaria del Inmigrante, Mayoral and the judge overseeing the case disagree about the reach of a very basic aspect of the law, regarding the measures to be taken when evidence suggests a crime has been committed. Article 13 of the Criminal Prosecution Law states that in such cases, "those affected or prejudiced by said crime should be protected, along with their family and other persons." Mayoral argues that the contracts were fraudulent, and therefore should be considered null and void, which by extension means they have no legal status, and that the repossession order upon which they are based is similarly invalid and should be halted.

The judge has asked the Attorney General's office to assess the matter, which has given some hope to the Ecuadorians that in cases such as theirs, borrowers should not lose their homes. That said, Conadee, an organization representing Ecuadorians living in Spain, says that it sent a letter to the then-Attorney General, Cándido Conde-Pumpido, calling on him to act against "the widespread fraud being committed through sub-prime mortgages." The organization said it was "puzzled at the lack of investigations being carried out in this regard," and asked for clear guidelines to be issued to judges and lawyers about how to proceed in such cases.

So far, the Attorney General's office has yet to respond. As things stand, says the body, there are no guidelines, recommendations, or instructions for lawyers on how to proceed in repossession cases where there are indications of fraud.

It's not just shady outfits such as the Central Hipotecaria del Inmigrante that are accused of trickery. Cristina Martín and José Luis Salazar have brought charges against the Kutxa savings bank for fraud. The couple had just 120,000 euros to pay on their mortgage with Caja Madrid when they decided to sell their apartment to buy somewhere bigger, given that their two children were now aged 16 and 12. The couple were on low incomes: he earned just 1,600 euros a month, and she was paid in cash. In August 2007, they took out a bridging loan to purchase their new home, valued at 240,000 euros, while their old property was sold. But the market collapsed shortly after, and their former home could not be sold. He then lost his job, and the repayments rapidly rose from 700 to 900 euros, making it impossible to keep up the mortgage repayments. Their lawyer says there are clear signs they were lied to by the bank, and that the supposed loan was in fact two mortgages, one for each property, and both based on inflated valuations.

But once again, neither the evidence pointing to malpractice by the bank, nor legislation to protect young people, nor the widespread crisis that has plunged thousands of other families into the same situation, has been borne in mind by the court.