When Spaniard Jose Antonio Langarita decided to buy his own home in 2006, he had no idea of the magnitude of the risks he was taking. Spain's property bubble had not yet burst, it looked like home prices would soar indefinitely, and that even low-income earners could afford to become home owners.
Three years after being granted a mortgage of nearly 80,000 euros (112,000 dollars), Langarita had unexpected expenses on his car, and he was unable to make the monthly mortgage payment of 450 euros. At the time, he was earning 1,100 euros a month as a cleaning company employee.
Langarita's home - located in Arroniz in the northern region of Navarre - was put up for auction. When no buyer appeared, the bank seized the property for 50 percent of its value and informed Langarita that he still owed the lender 28,000 euros. "I could not understand why - if I had already lost my home, and hardly had enough to eat - I had to continue paying the bank," Langarita said in an interview with the daily El Pais. In a ground-breaking ruling, a Navarre court said recently that Langarita did not have to give the bank anything but the mortgaged home.
That ruling and a few other similar ones have sparked a debate on whether Spain's financial institutions unethically plunged hundreds of thousands of people into economic precariousness by granting them mortgages they would obviously have difficulties paying. In Langarita's case, the bank acted in a "morally rejectable" way in making him pay for the loss of value of his home, which had resulted from the global crisis and the "malpractice" of the financial system, the court said.
Up to 500,000 households in Spain have lost or could lose their homes because of mortgage debts - often amounting to hundreds of thousands of euros - by 2012, according to the Platform of People Affected by Mortgages. It is wrong that "families are held responsible for the abusive practices of banks and of the government, which should guarantee citizens the right to decent housing," the group's representative Lucia Delgado told dpa.
The property sector boomed for about a decade in Spain, where nearly a million homes were sold annually between 2000 and 2008. "All of us who were part of the process lost the sense of reality," said Juan Fernandez-Aceytuno, who heads a property valuation company. Banks stocked up on their liquidity reserves by offering mortgages to almost anyone, including Latin American immigrants on temporary work contracts and with no savings.
Many of the mortgages were subprime loans - originating at US banks - on conditions, which some legal experts now feel constituted embezzlement. Homes were often overvalued, and paychecks were even falsified to justify mortgages high enough to allow all the intermediaries to pocket their share.
Mortgage holders were also encouraged to act as guarantors for each other, according to Delgado. When the global crisis triggered the meltdown of Spain's housing sector, home prices tumbled by about 20 percent in three years. Unemployment meanwhile rocketed to 20 percent, the highest in the eurozone.
As a consequence, many people now find themselves in a situation similar to that of Julio Cesar Rodriguez, an unemployed Ecuadorian immigrant who owes banks 325,000 euros - a debt he will continue paying for the rest of his life. Not only are people like Rodriguez liable for the full amount of the loan, but may also face tens of thousands of euros in penalty interest rates and court fees.
Spain's mortgage legislation is excessively harsh in comparison with other European countries, let alone the United States, where mortgage defaulters can settle their debt with the bank by turning over their home, according to lawyers representing defaulters. Several smaller parties have proposed changing the law, but the government has sided with the banking sector, which argues that its relative solidity is based partly on Spain's strict mortgage rules. Those rules have been one of the arguments used by the government to defend Spain's financial health, amid concern that the country could follow Greece and Ireland in needing to be bailed out by the European Union and the International Monetary Fund.