Moody’s Investors Service does not see a precedent being set by a provincial court in Spain that ruled that a bank’s repossession of a property effectively wiped out the borrower’s debt. The decision, handing down by a court of appeal in the northern Spanish region of Navarre, has ignited fears among RMBS players that loan defaults will jump and recovery rates drop as borrowers would have more incentive to default if their property prices are in the tank. In a report on the matter, Moody’s dismissed its potential to set precedent for other cases in the country, pointing out that “under article 105 of the Spanish Mortgage Act, a borrower is personally liable for all outstanding debt to the bank.” The full report is linked. For an article (in Spanish) on the court decision published in the daily El Pais on Jan. 26, click here.

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