HUMAN RIGHTS SHATTERED DREAMS Impact of Spain’s Housing Crisis on Vulnerable Groups WATCH Shattered Dreams Impact of Spain’s Housing Crisis on Vulnerable Groups Copyright © 2014 Human Rights Watch All rights reserved. Printed in the United States of America ISBN: 978-1-62313-1388 Cover design by Rafael Jimenez Human Rights Watch defends the rights of people worldwide. We scrupulously investigate abuses, expose the facts widely, and pressure those with power to respect rights and secure justice. Human Rights Watch is an independent, international organization that works as part of a vibrant movement to uphold human dignity and advance the cause of human rights for all. Human Rights Watch is an international organization with staff in more than 40 countries, and offices in Amsterdam, Beirut, Berlin, Brussels, Chicago, Geneva, Goma, Johannesburg, London, Los Angeles, Moscow, Nairobi, New York, Paris, San Francisco, Sydney, Tokyo, Toronto, Tunis, Washington DC, and Zurich. For more information, please visit our website: http://www.hrw.org MAY 2014 ISBN: 978-1-62313-1388 Shattered Dreams Impact of Spain’s Housing Crisis on Vulnerable Groups Glossary ............................................................................................................................. 1 Summary ........................................................................................................................... 3 Recommendations .............................................................................................................. 9 To the Government of Spain ..................................................................................................... 9 To the European Commission of the European Union ............................................................... 10 To the Council of Europe ......................................................................................................... 11 To the United Nations ............................................................................................................. 11 Methodology .................................................................................................................... 12 I. Background: A Crisis Foretold .........................................................................................14 Lack of Affordable Housing ..................................................................................................... 19 Insufficient Investment in Social Housing ......................................................................... 21 The Role of Civil Society .......................................................................................................... 23 Mediation Services ................................................................................................................. 25 The Role of the European Union ............................................................................................. 26 II. Particularly Vulnerable Groups ..................................................................................... 29 Immigrants ............................................................................................................................ 29 Single Parent Heads of Household .......................................................................................... 32 Women with Abusive or Hostile Ex-partners ............................................................................ 34 Insecure Housing .................................................................................................................... 39 Children ................................................................................................................................. 41 III. State and Bank Responses .......................................................................................... 44 Limited Protection against Eviction ......................................................................................... 44 Challenging Foreclosures in Court .......................................................................................... 48 Affordable Housing ................................................................................................................. 50 Accountability ........................................................................................................................ 54 IV. Mortgage Debt and Debt Relief .................................................................................... 58 Impact of Debt ....................................................................................................................... 60 Towards Debt Relief ............................................................................................................... 62 Datio in Solutum .............................................................................................................. 65 Spanish Insolvency Law .................................................................................................. 68 V. Human Rights Standards and Norms ............................................................................. 70 Right to Housing under International Law ................................................................................ 70 International Norms on Evictions ............................................................................................ 72 Affordable Housing ................................................................................................................. 73 International Obligation to Ensure Redress ............................................................................. 75 Human Rights Obligations, Over-indebtedness, and Personal Insolvency Regimes .................. 76 Acknowledgments ............................................................................................................ 81 Glossary Insolvency regime A process by which an economic actor who is unable to repay debts owed to creditors takes action to resolve the debt, usually involving partial repayment, including through asset liquidation, and in some instances debt discharge after a certain period of time. Chain mortgages A practice in which a string of people, often strangers, are linked together as guarantors for each other’s mortgage loans. Crossed mortgages (avales cruzados) A practice in which two individuals or sets of individuals serve as guarantors for each other’s mortgage loans. Datio in solutum (dación en pago) A procedure in which borrowers who cannot repay their mortgage loans are released in full from the underlying debt by handing their mortgaged property over to the lender. Debt discharge The cancellation or forgiveness of a debt. Debt relief The reorganization of debt so as to provide the indebted party with a measure of relief, either fully or partially, from a debt burden. Debt relief can take a number of forms such as reducing the outstanding principal amount (either partly or fully) and lowering the interest rate on loans due. Debt restructuring A practice that involves restructuring the terms of an existing loan in order to extend the repayment period. It may involve a delay in the due date(s) of required payments or reducing payment amounts by extending the payment period and increasing the number of payments. 1 HUMAN RIGHTS WATCH | MAY 2014 Default interest rates The interest rate charged to a borrower when payments on a mortgage are overdue. This higher rate is applied to outstanding balances in arrears in addition to the regular interest charges for the debt. Social rent (alquiler social) Affordable rent set at a particular percentage of an individual or family’s income (commonly 30 percent or less). Wage garnishment The removal of a set fraction of an individual’s income for the purposes of debt repayment. In Spain this is achieved through the acquisition of a court order in favor of the creditor. SHATTERED DREAMS 2 Summary Hopeful home purchases during Spain’s economic boom have turned into a nightmare of foreclosures, evictions, and over-indebtedness amid the economic crisis. Many, Spaniards and immigrants alike, bought over-priced homes during Spain’s housing bubble, when the economy was booming, jobs were plentiful, and mortgages were all too easy. Rents in Spain’s small rental market were high, and what seemed like a rational choice to purchase was made to appear even more attractive as real estate agencies and banks aggressively marketed mortgages of 100 percent or more of the cost of a property and “facilitated” loan requirements and guarantors. The situation today is quite different. In 2007, the housing bubble burst, the economy collapsed, and almost five million people—nearly 26 percent of the economically active population—are officially registered as unemployed. Many tens of thousands of people have been evicted or face foreclosure and eviction due to defaults on their mortgage payments. Many are left with heavy debts even after their homes are repossessed. This report focuses on the disparate impact of the mortgage crisis on particularly vulnerable groups, including immigrants, women heads of household, women victims of domestic abuse (including economic abuse by their intimate partners), and children. It also addresses the situation of those who have become over-indebted due to home purchases and have no realistic pathway towards discharging their debt. Immigrants were among the first groups affected by the mortgage crisis and appear to be disproportionately represented among those