When the mortgagee has failed in paying one or more than one mortgage instalments, the bank enacts an internal procedure to require the debtor to update his situation, including payment of interests and costs. If the default situation continues, the file is sent to the bank legal office who starts the foreclosing proceeding before Court (the competent Court is the one of the situation of the mortgaged property).

In many cases the financial entity ask the debtor to pay partially the mortgage instalments (without paying every instalment in full). But every instalment not paid generates interests and the following payments destined to cover the debt are, in fact, imputed to such accumulated interests. Consequently, the outstanding amount is increased day after day. At the time of execution, the overdue sum is higher than expected due to the partial payments have been mainly imputed to cover interests. The debtor affected continues thinking that the bank will not foreclose if he pays every month (even not in full). The surprise comes when he finds out that the bank does execute because the mortgage is not updated.

The best if you know that you are going to fail in payments of instalments, is negotiate with the bank in order to refinance, which means that a Refinance Title Deed should be signed before Notary. Normally, a waiting period is agreed (in most of the cases, two years) in which only interests are paid. At the deadline it comes again the system of payment of capital and interests.

Once the foreclosing proceeding is started, the bank claims all the amount of the loan (not only the sum debt to-date), after a previous unilateral notarial liquidation. What can be done at that time?. The execution continues and, normally, cannot be stopped. The outcome is to delay the proceeding as long as possible.

The defence could be based either in formalities, like the lack of personal notification, or in substantive grounds, like the existence of abusive clauses, by means of opposition.

In the first case the debtor can ask for nullification of procedure to rewind it and restructure it. However, it is interesting to point out that there are many cases in which all the proceeding was nullified, enforcing the bank to start a new foreclosing procedure. An example of this case is when two banks have merged, so the Mortgage Deed was granted for one bank (i.e.: Bank A) who merged with another one (creating Bank B) who is the one that is foreclosing. This way, the debtor can bring the exception of lack of active legitimation (of Bank B) because the bank that is foreclosing is not the one that signed the mortgage. In many cases this exception was not accepted in first instance but was in second instance by the Provincial High Courts. The jurisprudence is not pacific and there are contradictory resolutions.

Other nullification reasons is when the bank starts a foreclosing proceeding against mortgagee and guarantor. Many High Courts have ruled that mortgagee and guarantor cannot be issued in the same foreclosing proceeding, nullifying it.

In any case, the outcome is to rollback the procedure or to re-start a new one, gaining time.

It is also possible to gain time by means of opposition based in substantive grounds based in the existence of abusive clauses, such us high default interests (that in some cases are in the region of 25%), anticipated expiration, etc. in these cases, if the judge considers that some of the clauses could be abusive, there would be a hearing. If they are abusive, they could be nullified. In addition to the delay, the debt can decrease substantially when interests are reduced.

In another post we will refer to the special case of a family home execution.

The most important thing is to act in time. Do not give up plea to the Court and interpose all legal measures to minimize the foreclose effects. To try to do something few days before the auction date is a very difficult task (although in some cases the auction could be suspended). The measures should be prepared from the moment when you stop paying a mortgage instalment, because, sooner or later, the bank will foreclose.xz

In many cases the financial entity ask the debtor to pay partially the mortgage instalments (without paying every instalment in full). But every instalment not paid generates interests and the following payments destined to cover the debt are, in fact, imputed to such accumulated interests. Consequently, the outstanding amount is increased day after day. At the time of execution, the overdue sum is higher than expected due to the partial payments have been mainly imputed to cover interests. The debtor affected continues thinking that the bank will not foreclose if he pays every month (even not in full). The surprise comes when he finds out that the bank does execute because the mortgage is not updated.

The best if you know that you are going to fail in payments of instalments, is negotiate with the bank in order to refinance, which means that a Refinance Title Deed should be signed before Notary. Normally, a waiting period is agreed (in most of the cases, two years) in which only interests are paid. At the deadline it comes again the system of payment of capital and interests.

Once the foreclosing proceeding is started, the bank claims all the amount of the loan (not only the sum debt to-date), after a previous unilateral notarial liquidation. What can be done at that time?. The execution continues and, normally, cannot be stopped. The outcome is to delay the proceeding as long as possible.

The defence could be based either in formalities, like the lack of personal notification, or in substantive grounds, like the existence of abusive clauses, by means of opposition.

In the first case the debtor can ask for nullification of procedure to rewind it and restructure it. However, it is interesting to point out that there are many cases in which all the proceeding was nullified, enforcing the bank to start a new foreclosing procedure. An example of this case is when two banks have merged, so the Mortgage Deed was granted for one bank (i.e.: Bank A) who merged with another one (creating Bank B) who is the one that is foreclosing. This way, the debtor can bring the exception of lack of active legitimation (of Bank B) because the bank that is foreclosing is not the one that signed the mortgage. In many cases this exception was not accepted in first instance but was in second instance by the Provincial High Courts. The jurisprudence is not pacific and there are contradictory resolutions.

Other nullification reasons is when the bank starts a foreclosing proceeding against mortgagee and guarantor. Many High Courts have ruled that mortgagee and guarantor cannot be issued in the same foreclosing proceeding, nullifying it.

In any case, the outcome is to rollback the procedure or to re-start a new one, gaining time.

It is also possible to gain time by means of opposition based in substantive grounds based in the existence of abusive clauses, such us high default interests (that in some cases are in the region of 25%), anticipated expiration, etc. in these cases, if the judge considers that some of the clauses could be abusive, there would be a hearing. If they are abusive, they could be nullified. In addition to the delay, the debt can decrease substantially when interests are reduced.

In another blog we will refer to the special case of a family home execution.

The most important thing is to act quickly. Do not give up plea to the Court and interpose all legal measures to minimize the foreclose effects. To try to do something few days before the auction date is a very difficult task (although in some cases the auction could be suspended). The measures should be prepared from the moment when you stop paying a mortgage instalment, because, sooner or later, the bank will foreclose.

Spanish