Stages of application of the Code

2.1. Measures taken prior to foreclosure: restructuring of mortgage debts

Debtors who fulfil the requirements set out in 1.1.1 may apply to have their debt restructured to ensure its viability in the medium and long term. The restructuring plan drawn up by the entity shall consist of the joint implementation of the following measures:

• i) Capital grace period of 5 years.
  Notwithstanding the above, if the increase in the effort represented by the mortgage burden on the family income has increased by less than 1.5 and the household does not fall into any of the family circumstances of particular vulnerability defined in Article 3.1(b) of the Code of Good Practice, the grace period will be two years.
• ii) Extension of the repayment period up to 40 years from loan approval date.
  Notwithstanding the above, if the increase in the effort represented by the mortgage burden on the family income has increased by less than 1.5 and the household does not fall into any of the family circumstances of particular vulnerability defined in Article 3.1(b) of the Code of Good Practice, the repayment period may be extended up to seven years, not exceeding the term of forty years from loan approval.
• iii) Reduction in the interest rate to Euribor -0.10% during the grace period. However, for fixed rate loans, the current fixed rate shall be applied during the grace period.
  Notwithstanding the above, if the increase in the effort represented by the mortgage burden on the family income has increased by less than 1.5 and the household does not fall into any of the family circumstances of particular vulnerability defined in Article 3.1(b) of the Code of Good Practice, the interest rate applicable during the grace period shall be such that it represents a reduction of 0.5 per cent of the current net value of the loan in accordance with the current regulations.
• iv) In any case, clauses limiting interest rate reduction set out in mortgage loan contracts shall be indefinitely inapplicable.
  The debtor may also submit a proposed restructuring plan to the entity at any time. No settlement fees will be charged for early repayment of the credit or mortgage loan requested within ten years of approval of the restructuring plan.

Debtors who are in the process of foreclosing may not request restructuring once the auction notice has taken place.

Likewise, any debtors who have been granted a restructuring arrangement in accordance with the above, and at the end of their capital grace period are on the exclusion threshold defined in the Code of Good Practices, may request a second restructuring plan, provided that the end of the grace period is not the reason they are on this exclusion threshold.

To do so, within 1 month of the debtor submitting the new application, the entity shall update the debtor’s solvency and, if it is viable in accordance with section 1 of the Annex to the Code of Good Practice, draw up a new restructuring plan under the terms of the Code, which will result in a capital grace period of five years and the rate established in section 1(b), iii of the Annex to the Code of Good Practice. In other words, reduction in the interest rate to Euribor -0.10% during the grace period. However, for fixed rate loans, the current fixed rate shall be applied during the grace period.

Notwithstanding the above, if the increase in the effort represented by the mortgage burden on the family income has increased by less than 1.5 and the household does not fall into any of the family circumstances of particular vulnerability defined in Article 3.1(b) of the Code of Good Practice, the interest rate applicable during the grace period shall be such that it represents a reduction of 0.5 per cent of the current net value of the loan in accordance with the current regulations.

2.2. Complementary measures: debt reduction

If the restructuring plan envisaged in 2.1 is unviable – meaning it which would establish a monthly mortgage repayment greater than 50% of the household’s total income - debtors may request a reduction of their outstanding capital provided they comply with the conditions set out in sections 1.1.1 and 1.1.2. The entity shall have the power to accept or reject the requested reduction.

For the purpose of determining the reduction, the entity shall use one of the following calculation methods and shall notify the debtor of the results obtained, regardless of whether the entity decides to approve this debt reduction or not:

• i. Reduction by 25 percent.
• ii. Reduction equivalent to the difference between capital repaid and the total amount borrowed calculated as the number of instalments paid by the debtor divided by the total number of repayments expressed as a percentage.
• iii. Reduction equivalent to half the difference between the current value of the property and the value resulting from subtracting from the initial valuation twice the difference with the loan granted, provided that the former is less than the latter.

In addition to debtors who have requested a plan that has been deemed unviable, the following may request a reduction in debt:

• (i) Debtors who have begun foreclosure proceedings in which the auction notice has already occurred.
• (ii) Debtors who, although they fulfil the requirements set out under sections 1.1.1 and 1.1.2, are not eligible for dation in payment since the property has incurred charges subsequent to the mortgage they wish to cancel.

2.3. Substitute measures for foreclosure: dation in payment

Debtors for whom restructuring and supplementary measures, where appropriate, are not viable and who meet the requirements set out under sections 1.1.1, 1.1.2 and 1.2.2, may request dation in payment of their habitual residence within 24 months of submitting a request for restructuring. In these cases, the entity will be obliged to accept receipt of the mortgaged property to the entity itself or to a third party that it appoints, and the debt shall be definitively cancelled, provided that:

• (i) The Debtor has not begun foreclosure proceedings in which the auction notice has already occurred, or
• (ii) The house has no subsequent charges levied on it.

This request may also be made by debtors who, once a restructuring plan has been approved and is in progress, realise that they are unable to meet payments after twenty-four months from the restructuring request. In this case, the entity will evaluate the possible transfer of the mortgaged property by the debtor to the entity itself or a third party it appoints, and the debt will be definitively cancelled.

If requested at the time of dation in payment, debtors may stay for a period of two years in the property as a tenant, paying an annual rent of 3% the total amount of the debt at the time of the dation. The non-payment of rent will accrue late payment interest charged at 10%.

2.4. Right to rent in the event of foreclosure on the primary place of residence:

Mortgage debtors subject to foreclosure proceedings, which have been suspended in accordance with the provisions of Article 1.1 of Law 1/2013, of 14 May, setting out measures to strengthen the protection of mortgage debtors, debt restructuring and social rent, may request to rent said property from the creditor who is instigating foreclosure proceedings, or person acting on their behalf, for a maximum annual rent of 3 percent of its value at the time of auction approval, determined according to the valuation provided by the debtor and certified by an approved surveyor. This rental agreement will be for one year, extendible at the request of the lessee, up to five years. By mutual agreement between the debtor and the successful bidder for the auctioned property, this rental agreement may be extended annually for an additional five years.

The request referred to in the previous section may be made within twelve months of the enactment of Royal Decree-Law 19/2022, of 22 November, establishing a Code of Good Practice to alleviate the rise in interest rates on mortgage loans on regular housing, amending Royal Decree-Law 6/2012, of 9 March, setting out urgent measures to protect mortgage debtors, and adopting other structural measures to improve the market for mortgage loans, for the subjects of foreclosure proceedings who have previously benefitted from the suspension of proceedings, and following the suspension for those who benefitted subsequently.