DEALING WITH PROPERTIES IN SPAIN
The EC Regulation on Insolvency Proceedings 2000 (‘the Regulation’) (see Chapter 41) generally provides that the law applicable to the bankruptcy is that of the Member State in which the bankruptcy order was made [note 1] (see paragraph 41.51).
There are, however, exceptions to this general rule, which exceptions include special provisions in the case of property. In particular, the opening of the proceedings does not affect third parties’ ‘rights in rem’ to property. ‘Rights in rem’ are the rights of a creditor or third party in respect of assets belonging to the debtor, which are situated in another Member State at the time of the opening of the proceedings (see paragraph 43.2.3) [note 2].
Broadly speaking, ‘rights in rem’ include security rights such as a mortgage, and the Regulation provides that it is the law of the country in which the property subject to security that would take precedence when considering the effect of the proceedings on those rights.
This does not affect the official receiver’s right, as trustee, to sell the property but means that he/she would have to ensure that, to comply with the Regulation, he/she will have to follow Spanish law when dealing with the rights of chargeholders. Paragraphs 43.2.16 to 43.2.18 to contain information on how the system of charges against property operates in Spain.
It is clear, therefore, that property in Spain belonging to the bankrupt would form part of the estate and should be realised as appropriate, following the guidance in this Part:
Of course, as with any other property, the official receiver should ensure that the value of the property to the estate justifies any action taken, or expense incurred, in relation to the protection or realisation of the property.
It is accepted that this may be something of a circular matter, in that it may be necessary to incur some expense to find out that the property has no value.
In simple terms, the calculation of the value of a Spanish property to the estate involves the same process as would be required for a property in England and Wales (that is, the value of the property less any secured charges). What may be more difficult is the obtaining of accurate information regarding the value of the property and the amount of and level of outstanding charges.
The most likely source of information regarding the value of the property will be from the information or documentation provided by the bankrupt, for example:
In Spain, the owner of a property must pay an annual real estate tax (called ‘Impuesto sobre Bienes Inmuebles’). On payment of this tax, he/she receives a receipt which shows the tax paid for that year and, also, the taxable value of the property (the ‘valor catastral’). The taxable value is usually less than the market value of the property, but reference to this figure may assist the official receiver in assessing the value of the property.
As in the UK, there are websites that give the prices of properties that are for sale and. Examples are given here:
It is possible that a local estate agent (which, in Spain, are called ‘Agente de la Propiedad Inmobiliaria’) may be prepared to offer an opinion. An agent may be located by region on the following websites:
Where it is necessary to obtain an accurate value of the property the official receiver, as trustee, may consider appointing the Spanish equivalent of a surveyor (called a ‘tasador’). As this service is likely to attract a fee the official receiver should consider the necessity of the valuation against the likely benefit to the estate. A tasador may be located by search on the following website:
It is likely that, as with a UK property, the official receiver will be able to establish what charges there are against the property from documentation or information provided by the bankrupt.
Assuming the identity of at least one of the secured chargeholders is known, they can be written to in the normal way (see paragraph 43.2.13) to obtain details of the amount outstanding under their charge and the identity of any other chargeholders. Such an approach should be accompanied by a data protection act disclosure authority completed by the bankrupt (see paragraph 43.2.30) to avoid any refusal to provide information under jurisdictional differences.
In the first instance, the official receiver should contact any chargeholder and request that they note the official receiver’s interest in the property (see paragraph 43.2.13). Paragraphs 43.2.16 to 43.2.18 give information and guidance on the operation of charges under Spanish law.
In addition to informing the chargeholders of the making of the bankruptcy order, it will be necessary to register the official receiver’s interest in the property at the land register office (see paragraph 43.2.14).
Annex 1 is an MP2 letter (seeking information from a chargeholder) that has been amended to be more relevant in respect of a Spanish property.
Annex 2 is an MP3 letter (requesting the chargeholder to note the official receiver’s interest in the property) that has been amended to be more specific in respect of a Spanish property.
The official receiver, as trustee, should take steps to ensure that his/her interest in the property is recorded at the Spanish national land registry (see paragraph 43.2.19). This will stop any unauthorised dealings in the property.
This can be achieved by registering a notice with the land registry that bankruptcy proceedings in England and Wales have commenced. This is provided for in the EC Regulation [note 7] and under Spanish law [note 8].
The Spanish national registry charge a fee for registration, with the level of the fee dependant on the value of the property and the length of the annotation to the register that is required. For this reason, and the fact that it will first be necessary to obtain a copy of the property’s register entry (see paragraph 43.2.19) in order to calculate the fee, it is likely to be administratively difficult for the official receiver to apply directly for registration. Instead, the official receiver may consider appointing one of the firms listed in Annex 7 to carry out the registration of the bankruptcy order.
Such firms are likely to require the bankrupt’s Spanish NI number (known as an NIE number) or a copy of their passport to assist in the registration process.
Property in Spain is held on the basis of each joint owner holding a share (the proportion of which is decided at the point of purchase – but would generally be 50/50 for a property owned by a married couple) which may be transacted separately. There is no concept of joint ownership requiring each party to be party to the sale of the property, as in England and Wales.
In essence, the Spanish system of mortgages on residential property operates in the same way as in England and Wales. The loan is granted in advance of the purchase of a property and then, following completion (see paragraph 43.2.25), the lender will obtain a charge against the property securing the loan. The charge gives the lender rights (including possession rights – see paragraph 43.2.17) against the property notwithstanding any insolvency proceedings opened against the debtor.
Unlike property rights, mortgage rights require entry in the Register and do not exist in law unless in the Register (see paragraph 43.2.19).
A secured creditor in Spain has similar powers to seek and obtain possession of a property as those available to chargeholders in the UK. First, the lender will attempt to reach an agreement with a defaulting lender (including a voluntary surrender of the property – see paragraph 43.2.18). If that is not possible, the lender will apply to the court for a repossession order, following which there is a public auction of the property (‘subasta’). The process normally takes at least 18 months – with another 6 months for eviction, if that is necessary.
The procedures under which a lender may seek to realise the charge are regulated under Spanish law [note 9].
Spain has a process of formal surrender of a property (known as ‘Dación en Pago’). For a property to qualify for the process, the minimum requirements are that the property should have sufficient equity to pay both the mortgage and a proportion of the associated legal costs and repossession proceedings (see paragraph 43.2.17) have not begun. In reality, it is likely that the lender will require that the property has equity of 20% of the value before it will accept possession of the property. If it accepts surrender then, in return, the mortgage debt will be cancelled and the debtor will not be held liable for any future shortfall [note 10].
Spain has a centralised system of land registration, though it is not compulsory to register land/property (a ‘fincas registrales’). The system is two-pronged –one register (called the Catastro) records information regarding the size and description of the property and the boundaries of the land. The other system (called the Registro de la Propiedad) records details of ownership, registered rights (such as charges/mortgages - ‘hipoteca’) relating to the property, along with any restrictions or rights relating to the ownership of the property [note 11] [note 12].
Registration is not compulsory, but many properties are registered as a means of proving ownership and for ease of transfer. Once a property is registered (and has been allocated a property number), a third party purchaser can presume that the information contained in the register is correct and can act upon it accordingly (a principle known as ‘tercero hipotecario de Buena fé’) [note 13]. Any unregistered interest will not affect the title of the purchaser, and any dispute in this regard will be between the seller and the person claiming the interest.
For the purposes of establishing the information held at the property registry, the official receiver should make application for a ‘nota simple’, which provides details of the registered proprietors and, also, details of any charges against the property.
The official receiver may obtain such information on-line by following the link in the following web-page; https://buyingahouse.registradores.org/. This is a service of the Spanish land registry to provide a translated version of the ‘nota simple’. The cost of the service is likely to be around 35 Euros. The official receiver should give the name of the bankrupt (or suspected owner(s) of the property if that is not the same person) in the information provided to the land registry when completing the on-line application.
Payment for this service should be made by use of the official receiver’s ‘corporate’ card.
Whilst the following paragraphs give guidance on matters relating to the sale of a property in Spain, it is not envisaged that the official receiver would deal with such realisation without local legal representation (see paragraph 43.2.27)
As with a property in England and Wales, the official receiver, as trustee, should seek to transfer dealings in relation to the property to the appropriate RTLU as soon as possible after his/her interest in the property has been protected (see paragraph 43.2.12).
As outlined in paragraph 43.2.4, the Act gives the official receiver, as trustee, the power to take possession of and sell a property that forms part of a bankrupt’s estate [note 14]. Under the provisions of the Regulation [note 15] [note 16], however, the official receiver must have respect for domestic (Spanish) law when taking steps to realise the interest in the property. In particular, he/she must follow rules in Spanish law when taking steps to realise the interest in the property. In particular, he/she must follow rules in Spanish law in regards to the conveyance of the property (see paragraph 43.2.25).
In particular, the official receiver, as trustee, will need to obtain a recognition of his power to deal with the property. This procedure is known as the ‘exequator’ procedure and is provided for in Spanish law [note 17].
It is not expected that the official receiver should enter into the sale of a Spanish property without expert guidance from a lawyer (probably based in Spain) well versed in Spanish law (see paragraph 43.2.28).
It has not been possible to establish what, if any, rights (such as a right of purchase) relatives or joint owners of the property have in the event that a property is being sold by the joint owner or a party with a third party interest (such as a trustee in bankruptcy).
The official receiver’s legal representation (see paragraph 43.2.28) will guide him/her on this point.
The Regulation provides that matters relating to how the insolvency affects a tenancy agreement or lease are decided by the law of the country in which the property is situated [note 18]. This means that the official receiver will be unable to follow the guidance in regarding tenanted properties in the Technical Manual and, instead, the guidance of Technical Section should be sought where the official receiver encounters a Spanish property which is being rented out by the bankrupt. For information, Spanish tenancy law is decided under the Law of Urban Lettings ‘Ley de Arrendamientos Urbanos [note 19]’.
So far as selling a tenanted property in Spain is concerned, Spanish law provides that a sitting tenant (‘inquilino’) has a right of first refusal (called ‘tanteo y retracto) in regards to any sale of the property. The owner (‘propietario’) must make a formal, written offer to the tenant setting out the price he/she would be willing to accept, along with any conditions of sale. If the tenant refuses the offer then the property may be sold as normal. If the owner tries to sell the property without going through this process then the tenant has the right to block the sale and buy the property at the contracted price.
The official receiver’s legal representation (see paragraph 43.2.28) will guide him/her on these points, if necessary.
The first stage in the conveyancing process is for the seller and purchaser to agree the details of the sale, during which process the purchaser pays a deposit. This stage is the agreement of the purchase contract (the Contrato Privado de Compraventa). Once the purchase contract has been signed, the conveyance proceeds to the next step, which is the signing of the public deed (Escritura de Compraventa). If the purchaser pulls out before the signing of the public deed he/she loses the deposit. If the seller backs out, he/she must pay the purchaser double the deposit amount.
The process of signing the public deed (see paragraph 43.2.26) is completed in front of a notario (see paragraph 43.2.27) who witnesses and registers the change of ownership on behalf of the state. Title passes formally and finally when the Escritura de Compraventa is registered at the Registro de la Propiedad and becomes the ‘Escritura Pública’. This process is carried out by the Notario (see paragraph 43.2.27).
It is not expected that the official receiver, as trustee, would be required to travel to Spain to undertake this procedure. Instead, it is envisaged that the local legal representation (see paragraph 43.2.28) would deal with this part of the process. For this to happen, the local representation would need to be given a power of attorney (‘poder’). The local representation should lead the official receiver in this process.
The Notario is a government appointed lawyer whose job it is to ensure that the conveyance proceeds correctly, in terms of the law. The Notario does not act for either party particularly and has a neutral role. The costs of the Notario may be settled by either side, depending on what is agreed.
It is not envisaged that official receivers, as trustee, should attempt to deal with the sale of a property in Spain directly, and it is recommended that local legal representation (an ‘Abogado’) is obtained to deal with the particular aspects of Spanish conveyancing and insolvency procedures – not least the need to be personally present at the signing of sales contracts (see paragraph 43.2.26).
Solicitors engaged by the official receiver in this country may be able to recommend a solicitor in Spain with which they have some connection or arrangement.
Annex 7 is a list of firms who have approached, or otherwise come to the attention of, Technical Section and who appear to be able to act for, or assist, the official receiver in the protection and realisation of Spanish property. Technical Section makes no particular recommendation and, if the official receiver has knowledge of any other solicitors (perhaps, on recommendation of his/her own solicitors), he/she should feel free to use them instead.
The website of the Law Society has a database of lawyers that may be searched by location and specialism:
Alternatively, the British Consulates in Spain may be able to recommend a solicitor (http://ukinspain.fco.gov.uk/en/about-us/other-locations/).
It may be the case that any Spanish organisation from whom the official receiver seeks information will cite data protection as a reason for not providing the requested information.
In this case, the official receiver should have the bankrupt complete the data protection subject access form (attached at Annex 8) and send that to the relevant organisation with a renewed request.
The official receiver, as trustee, may issue a disclaimer of the property, but only if the property has some onerous obligation attached to it (such as an obligation to repair, maintain, make safe, insure for public liability or make secure) and, as a result, has no value to the estate.
An obligation that official receivers may particularly encounter when dealing with a Spanish property is the obligation to pay service charges, maintenance charges, community charges, or similar – which may attach to the property.
Annex 9 is a document, in Spanish, which explains the purpose and effect of a disclaimer and which should be included with the notice of disclaimer when served on the interested parties.
See Chapter 34 for advice regarding the process of disclaiming.
Timeshares are dealt with in detail in the Case Help Manual part ‘Timeshares’ and paragraphs 31.3.52 to 31.3.55. In short, the basic principle for dealing with a timeshare is that it should be valued (using the services of one of the companies whose details are given in Chapter 31.3, or a company providing similar services), taking into account any outstanding finance or service charges, and realised as appropriate.
Not that it should affect the official receiver’s ability to sell the timeshare, but the law relating to timeshare contracts for properties in Spain will be the law of Spain [note 20] – even if the contract itself says that it will be decided under the law of some other country .
Where there is no prospect of the property achieving equity sufficient to make realisation worthwhile, the official receiver, as trustee, may cease to take any active steps in dealing with the property – effectively, ‘abandoning’ the property to the mortgagees. Where the property’s value is affected by some onerous obligation (to insure or make the property safe, for example) a disclaimer would be the more appropriate course of action (see paragraph 43.2.31).
Where this position is apparent prior to the process of registering his/her interest at the Land Registry (see paragraph 43.2.14), the official receiver may discontinue that process. The official receiver should, though, ensure that his/her interest in noted by the mortgagees in the event of a surplus arising.