How to Protect Credit From Vulture Funds?

4/03/2014 – Cinco Dias

Private equity risk firms, known as vulture funds, are taking advantage of the urgent necessity of banks to shed their real property. They buy both property and credit portfolios at bargain prices. The transactions not only ease the banks, but also affect debtors who have the right to re-buy their credits at prices paid by a purchaser.

Defaulting credits of the Spanish banks reached €200.000 million in 2013, excluding the asset transfers to Sareb. Legal regulations that oblige to provision 100% of such credits after 12 months, have fueled the leakage of these assets from banks´portfolios. Santander, CaixaBank or Bankia have been the most active in terms of mortgage lot sales to such international companies as Fortress, Cerberus or Lone Star.

Recovery of the sold credit is not easy for the reason that the right to withdrawal (stated in the Civil Code of Spain) has got a nine-day complaint term which, in turn, is a subject to a series of requirements. First of all, the credit must be under court litigation proceedings. (…) However the allegation margin has become more flexible since the failure of the Court of Justice of the European Union concerning abusive clauses within the mortgage law.

Another challenge is knowing the identity of the new debt buyer as usually debtors do not receive any information about their credit having been sold, in spite of the legal obligation to send a notice about that. The notice, however, if eventually sent, lacks information about the purchase amount and is not registered. That handicaps manifestation when the nine-day term had begun. (…).

The latest credit portfolio sales reached 80% discounts. (…) The debtor, let it be a company or a legal person, could cut-off by this amount interest and court expenses.


Original article: Cinco Días (David M. Pérez)

Translation: AURA REE