Separation and mortgage: what can we do in this situation?
Although I will make a post a little more extensive on the subject, say that this entry made by a server in one of the reference real estate portals of Spain, Fotocasa , is one of the last that have been published after causing the loss of the great team of Bankimia .
I take the license to transcribe the entry, since I am sure it will be of interest to the visitors of the Futur Finances blog:
Breaking the emotional and vital ties that bind us to another person is one of the most bitter drinks we have to drink in this life. But if, in addition to psychological pain, we encounter the economic problems of having to face the monthly installments of a common mortgage loan, things get even more complicated.
Grosso mode the options that the couple that separates are:
- Sell the home to a third party , cancel the mortgage and share the profits or losses, if applicable. It would be the best option, the most common in times when the real estate market works properly. Currently it presents problems if we cannot adjust the selling price to the maximum (the outstanding debt of the mortgage usually marks the limit of the price reduction).
- Proceed to the extinction of the condominium; To understand each other, the house is “sold” to the other. It is the most economically fiscally speaking of transmitting property.
- The payment date to the bank; It is a practically disposable option, consisting of giving the house to the bank in exchange for extinguishing the mortgage debt.
- Other intermediate temporary options that do not affect the ownership of the property could be to continue living in the same home after the separation (nowadays it is a habitual situation) and continue paying the mortgage or that one goes to rent or to the house of their parents and the other stay in the mortgaged home, agreeing how the mortgage is distributed and other expenses.
Condominium termination: tax advantages
For real purposes, selling the pro undivided to the other owner or extinguishing the condominium has the same result. The 100% ownership becomes a single owner. But for tax purposes there is a lot of difference.
If we transfer ownership of 50% of the house to our ex-partner through a purchase-sale contract, valuing the sale in half of the mortgage (imagine that our half is 100,000 euros), we pay expenses of approximately 8,100 euros ( not counting the mortgage expenses).
On the other hand, if what we sign before a notary is a condominium extinction valuing it for 100,000 euros, the expenses are 2,100 euros. The AJD tax is only 1% , instead of the 7% that is paid if it is implemented as a sale.
The tax savings of using the condominium extinction resource is 7,000 euros (for a valuation of half of the house of 100,000 euros).
Condominium termination: the mortgage problem
We have to understand that one thing is the property of a property and another is the mortgage debt that the property guarantees.
In Spain, our legal system includes the possibility of limiting the mortgage debt to the real estate (Article 140 of the Mortgage Law); However, in practice this possibility is not contemplated by any entity in the deeds, so the debtor’s universal responsibility governs: the property is a guarantee of collection, but in case it does not cover the debt (taking into account that if the auction is deserted the bank is awarded the good for 50% of its value) the financial entity can continue the recovery process against all current and future assets and rights of the debtor.
If we sign a condominium termination before a notary, the bank does not have to intervene. We sign the deed, register in the Property Registry and cease to be homeowners.
Fixed, right? Not much less.
If the financial institution with which we have the mortgage loan does not remove us from the deed (exempts us from debt), we will cease to be property owners but we will continue to be debtors. And if there are payment problems the bank can go against all our assets and garnish our income. And that without owning the house in question.
And if we want to ask for another mortgage with many possibilities, we will be denied the mortgage debt at CIRBE.
Therefore, we never recommend signing a condominium termination if the party that remains the property has not approved a new mortgage in which we do not appear (and goes the same day of the signing of the condominium termination to sign the new loan mortgage).
Issue of the guarantors
The thing is further complicated if the parents of any of the partners have guaranteed the mortgage loan. In this case, the couple’s problems become family problems both emotionally and economically.
If there are problems with the payment of the mortgage, the guarantors also respond with their assets, and the bank may decide to go against the solvent guarantor rather than the mortgage holders (so it is worth thinking that as we are insolvent, nothing will happen, will seize our parents).
And the worst situation is that they have endorsed the parents of one but not those of the other, since one of the families (the one that does not endorse) has incentives to ignore the problem, which falls on the one that endorses.
The guarantee is something very serious; If our children need our help, it is better to buy a part of the house than to guarantee. Good Finance undertakes family assets without owning .
Love is wonderful, but let’s not mix it with money or the combination can become explosive.