Economic measures in Spain against Covid-19 coronavirus: moratorium on mortgage payment and on duty to file for insolvency
19 March 2020
Today it has been published in the Spanish Official Gazette (Boletín Oficial del Estado) Royal decree-law 8/2020, dated 17 March, on urgent and extraordinary measures to fight social and economic impact of Covid-19 coronavirus (RDL).
These measures have a triple objective: (i) reinforce the protection of workers, families and vulnerable people; (ii) support the continuity of the manufacturing activity and to preserve jobs; and (iii) reinforce the actions taken against Covid-19 coronavirus. One of such measures refers to a moratorium on mortgage payments. The RDL also suspends the obligation of debtors to file for insolvency while the estate of alarm is in force.
Moratorium on mortgage payments
What does the moratorium imply?
The moratorium will imply both the suspension of the mortgage payments and of the accrual of ordinary and default interest during its duration; therefore the lender will not be able to request payment of any amounts owed under the loan agreement regardless of its nature (principal, interest, default interests, fees, etc). It will also prevent lenders from triggering the events of default set out in the loan agreements.
Who will benefit from the moratorium?
The moratorium will apply to any mortgage loans granted for the acquisition of a dwelling and whose debtor is in a vulnerable situation as a consequence of the Covid-19 coronavirus crisis. The moratorium will also benefit any personal guarantor in the same situation of vulnerability and in respect of its dwelling too and with the same conditions as the ones set out for the mortgage debtor. Guarantors and third party mortgagors in situations of vulnerability will be entitled to request lenders to pursue and exhaust the main debtors' assets before claiming the secured debt from them, even in those cases where the relevant guarantor or security provider has expressly waived the excusion benefit foreseen in Spanish Civil Code.
The RDL considers four vulnerability situations: (i) unemployed people or, in the case of enterpreneurs, the suffering of substantial loss in their income or a critical decrease of their sales (at least 40%); (ii) that the aggregate amount of the family household income, in the month prior to the request of the moratorium, does not exceed three times (3) the public index on monthly income (Indicador Público de Renta de Efectos Múltiples mensual), which will be adjusted taking into account factors such as the number of descendants, single-parent families or disabilities, among others, (iii) when the mortgage instalment (plus expenses and basic supplies) are equal to or higher that 35% of the net income of the family household; and (iv) that, as a consequence of this health emergency the family household has suffered a significant adverse change of its economic situation affecting its access to a dwelling.
How does the moratorium work?
This measure will need to be expressly requested by debtors to the lenders which would implement the moratorium within fifteen (15) days following such request. Lenders subject to prudential supervision will need to notify the moratoriums to the Bank of Spain and the term of each one for accounting purposes since such moratorium will not be considered for the calculation of risk provisioning.
The timeframe for debtors within the scope of application of this measure to request lenders the application of the moratorium will last fifteen (15) days following the date on which this RDL ceases to be in force.
Which will be the term of RDL and the moratorium?
The RDL will be in force one month as from 18 March 2020 although it expressly foresees the possibility of extending this period by means of a royal decree-law to be approved by the Spanish Government. However, any measure included in the RDL which foresees a specific term will be subject to the specific term set out therein.
The RDL is not clear regarding the term of the moratorium on mortgage payment and it does not foresee a specific term for such moratorium.
Suspension of the obligation to file for insolvency
Separately, Royal Decree-Law 8/2020 has stated that whilst the state of alarm remains in force, directors of a company which is in insolvency situation are not under the duty to request the judicial insolvency declaration. Further, any petition filed by a creditor will not be conducted until 2 months have elapsed since the cease of the state of alarm, and if a petition by the debtor is filed within such period, it will have preference in the conduction. This moratorium also applies to debtor which are under preinsolvency situation (the so-called 5bis proceedings).