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Spain's foreclosure crisis

Demonstrators of the Association "Affected by Mortgages" (Afectados por la hipoteca) shout slogans to stop the eviction of a family who can't pay their home mortgage payments in Madrid.

Tess Vigeland: In some countries, it's even more difficult to declare bankruptcy than it is here. In Spain, if you default on a mortgage, you're still liable for some of that debt. Spain's property bubble burst in 2008, and more than 300,000 families are still paying on homes they don't live in.

Lauren Frayer has the story from Madrid.


Lauren Frayer: Rolando and Luda Jimenez lost their jobs, then defaulted on their mortgage. They didn't want their two young children to see them being evicted. So a day before officials came to foreclose on their home, the couple went to their bank to volunteer the keys. Luda burst into tears when she saw a crowd of protesters there to support them.

Demonstrators, chanting: Rolando, amigo, el pueblo esta contigo!

"Rolando, friend, your village is with you!" they chant, blocking a street in downtown Madrid. These impromptu mobs have become a fixture in Spain. There's an average of 300 foreclosures a day here. Protesters often form a human chain, forcibly blocking officials from evicting residents. Sometimes it turns violent.

Sound of demonstrators scuffling with police

Woman: Nada violencia!

Foreclosure is a devastating thing for any family to go through, but in Spain it's worse: You still have to repay your mortgage, even after the bank takes your home away. It's just too much to bear for Luda Jimenez, as she turns in her keys.

Luda Jimenez, crying: You're paying for a house that's no longer yours, that you have to leave -- even after you've left. It's not fair.

Demonstrators, chanting: No estais solos!

Many in the crowd here to support the Jimenez family are the same demonstrators who've staged angry rallies across Spain for months over the economy. Now they're targeting Spain's banking system, in which debt is attached to individuals, not assets.

Federico Steinberg is an economist at Madrid's Elcano Institute. He says there's no Chapter 11 bankruptcy here, where your slate is wiped clean.

Federico Steinberg: The culture of, you know, "I made a mistake and I can start again" -- it's more difficult.

In Spain, if you can prove that the bank re-sold your house, you can petition a judge to erase some of your debt. But that process can take years. Protesters like Eva Duncan want banks to forgive that debt and temporarily halt evictions.

Eva Duncan: We're asking for answers that don't mean leaving people in the street.

Last month, the Spanish government tweaked the rules for how mortgage debt is calculated, and how much banks can deduct from people's paychecks. Protesters say those changes aren't enough.

Jesus Encinar is the CEO of Idealista, Spain's biggest real estate website. He says asking banks to swallow more debt could collapse the whole Spanish economy.

Jesus Encinar: Banks are not charitable institutions. They are there to make money and they are there to make business.

Encinar says Spain never had a sub-prime mortgage problem. Banks didn't offer irresponsible mortgages. The problem is, more than one in five Spaniards is now out of work. They can't afford any mortgage. And, Encinar says, many buyers did it to themselves. They intentionally over-estimated the sale price on their homes, to borrow more money from the bank. He says that was like gambling.

Encinar: Their bet didn't go well, their houses lost value and now they've lost money. And they want the rest of the economy to save them from the reckless debts they took. Is that fair? I don't think so.

Sound of demonstrators

There is one thing all sides agree on, says protester Eva Duncan:

Duncan: This was a huge party for a long time. You know, long term, that's not possible. We're getting the hangover from our huge party.

Spain's parliament has named a committee to investigate more mortgage reforms, but its report isn't due till December. By then, 20,000 more families will likely lose their homes.

In Madrid, I'm Lauren Frayer for Marketplace Money.

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