The Spanish legal system is currently undergoing considerable change. New administrative regulations came into effect in December 1998 and by the month of January the last major reform law had already been passed in parliament: The new Spanish Code of Civil Procedure ("Ley de Enjuiciamiento Civil"), otherwise referred to as LEC is due to take effect as of January 9^th 2001. After a wait of many decades and in the face of opposition from various regional Attorney Boards, the new Law of Civil Procedure was finally passed by the Justice Minister Margarita Mariscal de Gante of the conservative peoples party Partido Popular. The absence of correct procedure and the complexity of many of the existing civil procedures had long been a subject of discussion within Spanish legal administration bodies. However, the current laws, in existence since 1881, have fallen victim to many fragmentary and inadequate partial reforms in the past.

Within the framework of the latest reform, a whole new system governing Spanish mortgage repayment conditions has been devised. This is ultimately of great benefit to foreign banks and savings institutions which have become increasingly more willing to accept mortgages on Spanish property as security for credit agreements subject to U.K. law.

This is of particular significance to out of court mortgage repayment settlements, which can now be implemented simply in the presence of a Spanish notary. Although this has recently been declared unconstitutional by the Spanish "Tribunal Supremo", the legislating body has decided to uphold the procedure under the new title "venta extrajudicial" (extrajudicial sale). Whether or not this extrajudicial procedure will prove significant in practice is questionable, given that the recently devised legal procedure appears to be quite attractive in its own right. Julio Perez Rojas, Spanish attorney in Seville writes that under the new system repayment proceedings will most probably be enforced in not more than 90 days. If this time limit were enforced in practice this of course would be a pioneering step forward.

The most significant change in practice, is the replacement of the legal requirement whereby three public auction appointments had to be arranged. Under the new system the legal requirement is for one auction only. With the new procedure, before the auction begins the interested party makes a down payment of 30% of the estimated value of the property (as established by the mortgagee and the bank on making the mortgage agreement). In the past the amount to be paid was 20%.

This change ensures that only serious buyers take part, which in some Spanish regions creates a mafia in itself. If offers in this auction do not reach at least 70% of the estimated value of the property, the mortgagee has the option to present a better offer from a third party within 10 days. If he fails to do so, the bank pursuing the repayment may knock down the asking price to 70% of the estimated value in order to meet the mortgage repayment claim. Should the bank decide not to take this option and where the final offer is less than 50% of the estimated value of the property an oral hearing is convened where the circumstances of the individual case (debtors circumstances, the creditors income etc) are assessed by a judge. Based on the legal assessment the knock down price may be given to the third party offering less than 50% of the asking price. Should the court rule this option out, the mortgager still has the option to sell the property at 50% of the estimated value or alternatively at the total amount necessary to cover his claim (including interest and expenses).

Whilst a few years ago legislation covering mortgages in Spain was not considered safe enough to secure payment claims from other banks, nowadays it is often used to arrange additional, bridging and sole security. This trend is expected to continue as new mortgage repayment laws, set out in the LEC, come into effect as of January of next year.

* Attorney Stefan Meyer is a partner in the international legal consultancy firm Mariscal, Monereo, Meyer & Marinel-lo Abogados/ Rechtsanwalte in Madrid.

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