May 14, 2014
The government has yet to reform Spain’s insolvency laws to create an accessible, fair, and efficient mechanism for over-indebted people to discharge their debt.

Law 1/2013, enacted a year ago, was meant to be the government’s definitive response to the mortgage crisis. The law came after two royal-decrees, a condemnation by the EU Court of Justice and significant social pressure from the Platform of Mortgage Victims (PAH) and other groups.

While the law took forward measures to postpone evictions, provide affordable housing, alleviate mortgage debt, and ensure effective court remedies, its limited scope and results have not met the need for redress.

The law broadened slightly the criteria for benefitting from a moratorium on evictions. However it left in place criteria that unjustifiably exclude certain families – it covers, for example, a two-parent household with a child under age 3, but not the family next door with a 4-year-old. This distinction does not comport with international law, which considers anyone under 18 a child, entitled to the rights and protections laid out in the Convention on the Rights of the Child, including the right to shelter.

The law consolidated the Social Housing Fund, to provide evicted families places to live at affordable rents. Banks have committed roughly 6,000 properties they are willing to rent to such families, but people can only benefit through the fund from properties owned by the bank that evicted them. In 2013, the fund received 1,537 requests, and granted 780. Restrictive criteria, the poor quality of the units banks have made available,  and the fact that in many instances, people would have to move far from their  neighborhood and social networks, have  undermined  this initiative. Just a few days ago, the Fund broadened its eligibility criteria, including to allow all families with children, regardless of their age, to apply.

A glaring problem with Spain’s legal procedures for foreclosures was the lack of an effective means of redress for people facing foreclosure. The May 2013 law reformed the procedure in response to a European Court of Justice ruling to allow judges to determine whether a mortgage contract contained unfair clauses. But the 30-daywindow given to homeowners with open foreclosure proceedings to appeal was quite short, and the reform came too late for homeowners whose foreclosure proceedings had already concluded.

The law laid out measures for debt relief, and in some cases, debt cancellation, for some people facing overwhelming mortgage debt, but the criteria for who can benefit are limited.  Economy Ministry data show that a large portion of these requests are rejected, and the vast majority of other cases were concluded with some kind of debt restructuring. Relatively few cases were resolved through total debt cancellation, and hardly any through a partial write-down of the debt.

The government has yet to reform Spain’s insolvency laws to create an accessible, fair, and efficient mechanism for over-indebted people to discharge their debt.

Over-indebtedness linked to mortgages is a serious problem in Spain, and one that should be analyzed in light of Spain’s obligations under international human rights law. A significant majority of people who have lost their homes or who face foreclosure carry substantial debt they acquired to secure adequate housing  as homeownership was actively promoted to the detriment of providing sufficient affordable rental or social housing. And financial institutions engaged in irresponsible lending without adequate oversight.

The Council of Europe—a human rights institution of which Spain is a member—has expressed concern about the impact of over-indebtedness  on the enjoyment of basic rights—to education, healthcare, and food. A recent World Bank study emphasized the need for fair and efficient personal insolvency regimes to alleviate the suffering of debtors and their families as well as the social and economic impact of over-indebtedness.   

International law guarantees the right to housing as part of the right to an adequate standard of living. The right to adequate housing does not include a right to own property, or to retain ownership under any circumstances. It does, however, impose on states obligations to ensure policies and legislation are in place to progressively realize the right to adequate housing—for all segments of society—as expeditiously as possible.

The Rajoy government likes to say it has done more than any previous government to address the housing and debt crisis in Spain. This may be true, though its hand was certainly forced by the scale of the crisis, significant social pressure, and the condemnation by the EU Court of Justice. A year on, the government needs to fix the gaps in protection against eviction and access to debt relief, including by creating a fair pathway to a fresh start for the heavily indebted.

Judith Sunderland is senior Western Europe researcher at Human Rights Watch and the author of an upcoming Human Rights Watch report on the housing and debt crisis in Spain. The report will be released on May 28, 2014.