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Dation in payment of housing. Second chance law

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Dación en pago de la vivienda. Ley de segunda oportunidad
Dación en pago de la vivienda. Second chance law

The lack of income prevents individuals from meeting their obligations, including the installments of their mortgages. When this situation of insolvency worsens, individuals have the possibility of resorting to the provisions of the Second Chance Law, being very frequent that we are consulted about the possibility of making the second payment of the home that they have encumbered with a mortgage loan. But really:

What is the dation in payment?

The dation in payment is an alternative to foreclosure when the debtor can not cope with the payment of the installments of its loan. It consists of the transfer of the mortgaged property to the financial institution or a third party designated by it. With the delivery of the mortgaged property, the outstanding debt is definitively cancelled.

Therefore, by means of the dation in payment, the financial entity avoids having to initiate a judicial foreclosure proceeding and the debtor is released from the debt. Provided that certain conditions are met, an agreement is formalized between the financial institution and the debtor so that the debtor is released from the encumbrances upon delivery of the property. With the delivery of the property, the debtor loses the amount invested in it, but gets to cancel the outstanding debt and avoid having to pay commissions for non-payments and late payment interest.

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The Second Chance Law indicates that debts secured by pledge or mortgage are outside its application, but this does not mean that this law does not apply to mortgages, since it does affect the amount remaining to be paid on the loan after foreclosure. That is to say, if after auctioning the property the bank does not obtain enough money to cover the total amount of the debt, the debtor would still owe that amount, but the Second Chance Law puts an end to that situation, so the debtor will not have to pay that amount. By means of the consecutive bankruptcy, the debt can be cancelled by applying a de facto dation in payment, which translates into the delivery of the property to the financial institution but ensuring that the debt is canceled 100%.

For all these reasons, the Second Chance Law can be an escape route for debtors who have lost their home but who drag the outstanding debts of their mortgage or who do not want to lose their property for other debts they may have.

Therefore, the Second Chance Law can be an escape route for debtors who have lost their home but drag the outstanding debts of their mortgage or who do not want to lose their property for the other debts they may have.

Dation in payment with social rent option

It should be noted that the debtor may request the dation in payment with social rent option. This option may be requested by debtors who are at risk of social exclusion. Therefore, if the debtor cannot meet the mortgage payments, he/she has the possibility of requesting the dation in payment of the property with the option of social rent, in this way the debt will be completely cancelled, as well as the debtor’s responsibilities, having the possibility of remaining in the property as a tenant with an affordable rent, which may not exceed 3% of the total amount of the debt at the time of the dation, and for a period of time of two years. If during the lease period there are non-payments, the rent will accrue a default interest of 10%. The application for the social rent must be made at the same time as the dation in payment.

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