When you buy a mortgage loan that is already in foreclosure, you inherit the proceedings as they stand. And within those proceedings there is one condition that changes almost everything: whether the property is the main home of the person who owes the money. Spanish law gives that situation special protection, designed for the debtor, which the investor needs to understand before putting a price on the loan.
How you know whether it is the main home
The mortgage deed usually states whether the loan was granted to buy the family's main home. Later, in the proceedings, the court asks the debtor to state whether they live there, and that statement goes on file. The auction notice also records the occupancy: whether the property is occupied and by whom.
Watch out for contradictions. We have seen files where the deed speaks of a main home, the creditor states in its filing that it is not, and the notice says the debtors themselves occupy it. When that happens, assume the court will apply the protection.
What changes if it is
- The minimum award price. If the auction attracts no bids, the creditor can ask to be awarded the home, but not at any figure: at 70% of the auction value, or at 60% if the amount owed is lower than that (article 671 of the Civil Procedure Act). If the debt is below the award figure, the difference must be paid to the debtor.
- Costs. The legal costs that can be charged to the debtor are capped at 5% of the amount claimed (article 575.1 bis). For the same debt, you collect less.
- Eviction. Since 2013 there has been a stay of evictions from main homes for families in a situation of special vulnerability, extended several times. If the debtor meets the conditions, being awarded the flat does not mean being able to move in.
- Review of unfair terms. In consumer loans the court checks of its own motion for unfair terms (early termination, default interest). That can delay the proceedings and reduce what is collected.
"With a main home, the auction value stops being a reference number and becomes a floor: the 70% you have to pay if nobody bids."
What it means for the price of the loan
If the plan is to collect the loan at auction, the main-home status barely changes the arithmetic: someone bids, you collect what is owed plus what the court recognises, and the debtor's protection becomes the successful bidder's concern. If the plan is to keep the flat, the arithmetic changes completely. With an auction value of €187,000 and a debt of €98,000, being awarded a main home at 60% means €112,200, that is, paying €14,200 more than you are owed. And then there is possession, with the chance that the eviction is stayed.
That is why, in these cases, the price offered for the loan should come from the debt, not from the value of the flat. We explain it with figures in how you make money with an NPL.
What to ask for before bidding
- The mortgage deed and any amendments: purpose of the loan and the debtor's address.
- The order starting enforcement and the unfair-terms review, with its outcome.
- The demand for payment and the debtor's statement about their home.
- The auction decree and notice: auction value, occupancy and occupants.
- A Land Registry extract from today, not from when the claim was filed.
With that you know which scenario you are in. Without it, you are guessing. More on what to review in due diligence before buying at auction.
Frequently asked questions
At what price is the creditor awarded a main home if there are no bidders?
At 70% of the auction value, or at 60% if the total amount owed is below that 70%. If the debt is lower than the award figure, the difference is paid to the debtor.
What is the cap on costs?
In the foreclosure of a main home, 5% of the amount claimed.
Can the successful bidder move into the flat?
Not always straight away. If the family is in a situation of special vulnerability, the eviction may be stayed while the moratorium is in force.
How do I know whether the court treats it as the main home?
From the deed, from the debtor's statement on file and from the auction notice. If they contradict each other, assume the protection applies.