Who should worry about Overseas banks repossessing UK property?

Overseas property buyers are becoming aware of a risk that secured debts overseas may be pursued in the UK. A little known ruling called the European Enforcement Order (EEO), which has been around for some time, since 2005 in fact, is now coming to the fore.

Until now, there has not been much controversy surrounding EEOs, since they don’t appear to have been used as a means to launch action to recover unpaid, secured, debt from one European country to another. This was their original purpose, to enable cross-border secured-debt recovery, when required.

The latest high profile case of Carol and Ian Chatterton has raised this as an issue is some people’s minds. They bought an apartment in Duquesa, in 2004, located between Marbella and Gibraltar, Spain and later took out a mortgage of £145,000 with Banco de Sabadell.

When repayments became difficult in 2009, they wanted the bank to take back the apartment, but the bank refused. The bank is using a European Enforcement Order (EEO) to put a charge against the Chattertons’ UK property. They were unaware of this until notified of an interim charging order, posted to them by their UK county court.

This case has caused concern, as banks try to improve their defaulting loan book.

On closer reading, their case appears to be where the claim against them was uncontested and no lawyer has been involved. This may have aggravated the situation.

How can buyers protect themselves, should the use of EEOs increase?

From a technical and legal perspective, buyers should contest any claim early on in the process and seek appropriate legal advice, to ensure all the necessary procedures (designed to protect the individual’s interests) have been followed.

For an EEF to succeed, certain protocols have to be followed, such as:

·         the court proceedings in the Member State of origin must be conducted correctly

·         the arrangements required for contesting the claim (deadline for contesting the claim, consequences of failing to object, etc.) must be clear and communicated. The claim needs to be contested in the country of origin, or have been agreed to.

·         the Member State of origin must provide for a review in exceptional cases

·         the court in the enforcing Member State (usually the country where the debtor resides) may, subject to certain conditions, refuse to enforce a judgment, if it is irreconcilable with an earlier judgment, given in any Member State or in a third country. In certain cases, it can also stay or limit enforcement

Needless to say, it is better all round for an overseas property buyer, facing financial difficulties, to speak to the lender and come up with an agreed and revised financial plan.

In reality what are the chances of EEOs being used more in the future and not just limited to a few isolated instances?

Spanish property lawyer in Andalucia, have not experienced developers, or banks, using EEOs to pursue English assets, if there is a Spanish mortgage default. There have been threats of debt collectors, but none have resulted in UK asset pursual. So threats appear to be made, but not always followed through. Likewise in the Almeria province, this does not appear to be an issue currently.

In reality, debt recovery is really only likely to be limited to Spanish assets, as litigation is too lengthy and too costly to bring to the UK, both for the banks and developers. What’s more the recent  “Navarra Appeal Court” decision acts as a precedent, that will influence future court proceedings.

In the “Navarra Appeal Court” the judgement was reached that if a Bank repossesses a Spanish property, for a value much lower than the debt, (negative equity) then it has no right to further claim against the debtor´s assets, which might be the case normally. So this judgement is saying the debt which is guaranteed by the property, is limited to the value of that particular property and any shortfall cannot be pursued by other means.

What does this mean for UK owners and buyers of Spanish property?

So a Spanish mortgage, secured against a Spanish property, may be repossessed if there is a loan default, but the same rights are then not automatically conferred on the lender, to seek to repossess a second property. The judge, in effect said the bank must have decided the property was at a sufficient value, to have lent on it in the first place.

Similar decisions have been reached in the Provincial appeal Courts of Baleares and Cadiz, thus giving weight to the judgement. Whilst case law carries more weight in the UK than it does in Spain, and in Spain a precedent is only set by 2 Supreme Court judgements, it nevertheless establishes a legal judgement that can be taken into account if UK courts have to decide whether or not to refuse an EEO.

So in practice, EEOs may not turn into a mainstream, secured-debt, recovery tool, for banks in countries such as Spain. And the ‘originating authority’ in the Overseas Country, must certify that the defendant has agreed to the claim, or had the opportunity to object to the EEO

Posted by Louise Reynolds, Property Venture^®  3rd February 2011 , with contribution by Maria Luisa de Castro of Costa Luz Lawyers

Property Venture®, is an independent, European property expert, who helps people buy holiday homes and investment property in Europe and the Mediterranean, more easily and safely than they can on their own, because they offer grounded common-sense advice. Their focus is mainly: Spain property, Turkey property, Poland property, Morocco property, Cyprus property, Bulgaria property and Montenegro property. They are overseas members of the professional body: National Association of Estate Agents, the NAEA. This means they have been subjected to the membership criteria and have signed up to the professional code of conduct, established to help potential buyers or investors, buy overseas property with confidence.

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