Hopeful home purchases during Spain’s economic boom have turned into a nightmare of foreclosures, evictions, and over-indebtedness amid the economic crisis.
Many, Spaniards and immigrants alike, bought over-priced homes during Spain’s housing bubble, when the economy was booming, jobs were plentiful, and mortgages were all too easy. Rents in Spain’s small rental market were high, and what seemed like a rational choice to purchase was made to appear even more attractive as real estate agencies and banks aggressively marketed mortgages of 100 percent or more of the cost of a property and “facilitated” loan requirements and guarantors.
The situation today is quite different. In 2007, the housing bubble burst, the economy collapsed, and almost five million people—nearly 26 percent of the economically active population—are officially registered as unemployed. Many tens of thousands of people have been evicted or face foreclosure and eviction due to defaults on their mortgage payments. Many are left with heavy debts even after their homes are repossessed.
This report focuses on the disparate impact of the mortgage crisis on particularly vulnerable groups, including immigrants, women heads of household, women victims of domestic abuse (including economic abuse by their intimate partners), and children. It also addresses the situation of those who have become over-indebted due to home purchases and have no realistic pathway towards discharging their debt.
Immigrants were among the first groups affected by the mortgage crisis and appear to be disproportionately represented among those who have faced foreclosure and eviction. Many of those interviewed during the research for this report said they were caught up in so-called crossed mortgages, in which two buyers guaranteed each other’s loans, and chain mortgages, in which the banks linked together a string of people, often strangers, guaranteeing each other’s mortgages. In these scenarios, one person defaulting on their mortgage can produce a chain reaction, affecting all others because of their liability as guarantors.
Real estate agencies and credit intermediaries appear to have played a critical role in capturing clients for banks. Eduardo Cachago, a 44-year-old Ecuadoran, explained that representatives of a real estate intermediary would come regularly to the construction site where he worked to promote “deals” with banks for buying a home. “They knew at 10 o’clock we stopped working for 15 minutes, and they’d come and pester us,” he said. Hilda M., also an Ecuadoran who has been living in Spain for 15 years, said her real estate agent “did everything,” including finding a stranger to serve as guarantor for a €1,200 (US$1,650) fee.
Women heads of household also appear to be differentially affected by the mortgage crisis due to relatively greater income instability, on average lower wages, and greater child care responsibilities. Women tied by their mortgages to abusive or hostile former partners face particular challenges. While government measures temporarily protect survivors of domestic violence from eviction, there are no provisions to solve the problems women face in negotiating with banks for debt restructuring, relief, or cancellation when their former partner or husband, who shares the mortgage, refuses to cooperate. In some cases, this non-cooperation may amount to economic violence, a form of domestic violence in which an intimate or former partner exercises control over decision-making, use of, and access to economic resources, creating a situation of powerlessness and dependency.
While the long-term impact of the mortgage crisis on children in Spain is not yet known, the cases documented in this report provide a worrying picture of the emotional toll on children living in households facing foreclosure, eviction, and over-indebtedness. It can affect their overall well-being and development, leading to problems at school and in social settings.
The lack of meaningful personal insolvency procedures, in light of the debt burden imposed by Spain’s mortgage crisis on many individuals and families, is another key concern. The World Bank and other institutions have noted problems with Spain’s personal insolvency laws. In effect, they can trap individuals in a cycle of debt with no real prospect of discharging it. Most troubling are those that have had their homes foreclosed and have been evicted, but are saddled with housing debt that they cannot discharge and have no reasonable expectation of being able to repay. All of the people we interviewed had seen their homes repossessed by banks under a court procedure that awards properties for a percentage, set by law, of the appraised value of the property at the time the mortgage was taken out. The mortgage holder remains liable for the difference between that amount and the outstanding mortgage debt. Unless individuals had the benefit of free legal aid, they also incur significant procedural costs. The result is that many people who have defaulted on their mortgages carry significant debt even after they have lost their homes.
Most of the people we spoke with who are living with mortgage debt have given up trying to pay it off, saying they are simply unable to do so given their meager incomes. The debt nonetheless has direct consequences on their everyday lives and decisions and on their families. As in many other countries, debtors in Spain are registered on credit agency debtors’ lists, making it difficult, if not impossible, to sign apartment leases, buy anything on credit, or even acquire a mobile phone contract. They are more likely to work on the black market, and are unable to generate a living income for themselves or their families by pursuing entrepreneurial ideas because they cannot access credit. Their physical and mental health may deteriorate. They may become alienated from friends and family, either because they owe them money, or simply cannot afford to face social interactions.