People who bought homes at inflated prices during the boom can no longer unload them. And to make the situation worse, banks are rarely giving mortgages unless it is for foreclosed properties that are already on their own books, said Carlos Bardavio, a Madrid-based lawyer with Hogans Lovell International LLP who specializes in Spanish real estate.
"Right now the real estate assets are not liquid," he said. "People find themselves with property they cannot pay the mortgage on or sell, they lose it, and they still owe money to the bank."
Exactly how many evictions of people from their homes have happened since the crisis hit Spain and burst its property bubble in 2008 is unclear. Government statistics do not break down how many evictions are for first residences, second homes or property like small warehouses or apartments — which many Spanish families have traditionally purchased to rent out for extra income. Nonetheless, judges have issued more than 350,000 court orders for eviction following foreclosures since Jan. 1, 2008, and anti-eviction activists refer to that figure when they talk about how many people have lost their homes.
Data from the Bank of Spain clearly show that the total value of mortgage defaults has skyrocketed from €4.1 billion in 2007 before the crisis hit to €19.1 billion for the March-June period this year; the percentage of doubtful home mortgages stood at 0.7 percent of overall home mortgages in 2007, and is now up to 3 percent. Activists say Spanish banks can initiate foreclosure proceedings after mortgage holders fail to make three months of payments, though Bardavio said there is no standard rule and that they usually wait until eight to 10 payments have been missed. The entire process ending in eviction can take between six months and several years.
"Traditionally, Spanish foreclosure rates have been very low and the family network was strong, you always had some family member who would help you pay the mortgage so you could start over," said Carlos Vergara, a financial management professor at Madrid's IESE Business School. "But now the uncle who might have helped you in the past doesn't have the savings he used to."
Spain's Economy Ministry estimated recently that only between 4,000 and 15,000 people were evicted from 2008 until now from primary residences they own, but the estimate was based on data supplied from the banks, and activists dismiss the figures as an attempt to downplay the size of the problem.
"How can it be so few people when we have so many coming to us every week asking for help?" asked Rafael Mayoral, a lawyer for the Madrid chapter of the Platform for Mortgage Victims. He said some evictions are being halted because of the decree, but said many families won't be saved because their income is higher than the €14,400 limit.
Protests have mushroomed this year throughout Spain, where anti-eviction demonstrators advertise upcoming evictions and the street locations on Web pages to encourage people to show up at the apartments and try to prevent court agents escorted by police from carrying them out. The crowds range from dozens to hundreds and some protests have resulted in clashes with police and emotional scenes as people are forced to leave their homes.
The Spanish government plans to introduce new mortgage legislation in coming months, and last week ordered the government statistics agency to start tracking foreclosures of primary residences.
Activists have been calling for a U.S.-style system whereby those who default on their mortgages simply give up their homes and file for personal bankruptcy, leaving their credit rating in tatters but freeing them from mortgage debt.
But the Spanish Banking Association warns that the interest rates for business and individuals would shoot up if the activists' plan was adopted.
"Spain's mortgage system didn't create any problems," the association said in a statement, stressing that most Spaniards are still managing to make their mortgage payments. "The economic crisis and rising unemployment are the reasons why many Spanish families can't keep up on their mortgage payments."
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