What happens when you inherit a mortgage in Spain?
Like in many countries around the world, in Spain if you inherit a property you also inherit the mortgage (and any other fees or debts it might have).
Put simply, it means that you inherit everything, debts and all, and though the idea of inheriting a nice apartment or house in the country is a nice one, in reality, it can bit more complicated than that.
Not only does the heir (or heirs) have to pay inheritance tax, known as ‘el impuesto de sucesiones‘, and capital gains tax on the property, but will become legally liable for the monthly mortgage payments.
But what actually happens if you inherit a mortgage in Spain? What do you have to do, and what if you can’t afford to pay it?
So, let’s say you’ve inherited a small property unexpectedly. What can you do?
Well, there are a few options.
Take on the mortgage
The first is to formally accept the inheritance and with it all the financial consequences. You’ll need to go to the bank to change the name and ownership of the mortgage, a procedure known as subrogación de deudor (debtor subrogation). The process basically means changing the name on the mortgage without changing the bank, the mortgage, or its conditions.
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The bank may, in the event that there are several heirs named in the will, request additional guarantees if their financial profiles are riskier than that of the deceased.
Reject the inheritance
Another option is to reject the inheritance, though it should be noted that when you reject an inheritance you are rejecting all of it. That is to say, you can’t reject the mortgage and keep the property. This is an option if you can’t afford the mortgage payments.
Rejecting an inheritance is more common than you might think. In Spain the Covid-19 pandemic sent the number of property inheritances soaring to record levels: in March of 2020 alone a record 19,400 inheritances were recorded, 65 percent more than in 2019, according to data from Spain’s National Statistics Institute (INE).
But the sudden and unexpected rise in the death toll meant that many Spaniards were unprepared to inherit a property and were forced to reject the inheritance due to the mortgage or outstanding debts.
Data from Spain’s General Council of Notaries showed that in 2021 Spaniards renounced 40 percent of inheritances for, among other reasons, the accumulated debts they would also be forced to inherit.
Use other inherited assets
Another option is to use other assets from the inheritance to pay off the mortgage if the will provides sufficient inheritance to do so. This would be an option if you’re inheriting money or shares as well as property. By using other inherited assets to pay off the mortgage on the inherited property, the heir becomes the owner.
This procedure must be carried out before a judge or notary within 30 days from the notification of the inheritance with a summons to the creditors and all heirs named in the will, where you must present an accurate inventory of all the assets, rights and obligations of the inheritance, including their financial value.
If the mortgage will simply be too much of a financial burden to manage, another option is to sell the property.
But there is a process for selling an inherited property in Spain. The first thing to do is formally accept the inheritance and get hold of the legal documents, in addition to paying the corresponding taxes.
Once the property is registered in your name in the Registro de la Propiedad you can sell the property like any other.
What about if there’s more than one heir named in the will?
If there are several heirs named in the will, the debt will be divided equally, according to the inheritance.
Say for example there are three sisters named as heirs in their deceased mother’s will. The debts will be split up, with 33.3 percent going to each of them, if that’s the way it was stated in the will.
Mortgage-linked life insurance
There is a trick to avoid inheriting the mortgage.
Mortgage-linked life insurance policies protect heirs from inheriting the debts tied to properties, but this can’t be done retroactively (of course) and is more of a preventive measure. That is to say, the policy must be taken out before the inheritance becomes effective – ie, before they die.
Essentially, the beneficiaries of these mortgage-linked policies are the bank, so that when the mortgage holder dies the bank receives the outstanding debt on it, meaning that the heir inherits the property without the mortgage attached.