Consultant Zone

Dangers of Real Estate Owned (REO) portfolios in Catalonia

A new Law Decree was implemented on 27 March 2015 by the Generalitat de Catalonia, together with further rules set by the Law Decree 67/2015 dated 5 May 2015, which may affect portfolio investments from a timing and cost perspective.

The first new law adopts a series of measures e.g. communicating formally to the Agència de l’Housing of Catalonia within 15 days of any residential property purchased as a repossession, together with the requirement to inform the Generalitat de Catalonia of any repossessed property sales. This is because it has preferential purchasing rights for a period of time that it can enforce. This measure will become effective six months after the formal Law Decree comes into force.

The latter Decree relates to the quality of the housing stock and requires that the new owners keep the repossessed properties in a “habitable” condition and this will be monitored by professionals.

Failure to implement the necessary measures could result in a fine of €3,000 – €90,000 per property. In addition, failure to comply could also result in the transfer of rights to use the property to the regional Government for a period of up to 10 years. It is therefore crucial for owners of REO portfolios to ensure that servicers are acting in accordance with this new Law to avoid exposure to significant fines and reputational risk.

Having carried out a number of servicer reviews in Spain, we have identified a number of gaps in policies and processes that could create significant risks for portfolio owners.

Call us to identify weaknesses in portfolios and to help you mitigate the potential risks.