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What is an NPL
A defaulted mortgage loan that the bank sells, usually at a discount. Whoever acquires it takes the bank's position as creditor, with a property as security.
How an NPL works
- 01
The loan
A bank lends money and a property is pledged as security for its repayment.
- 02
The default
The loan stops being repaid and the bank classifies it as doubtful: this is what the industry calls an NPL.
- 03
The sale
The bank sells the loan, usually as part of a portfolio, for less than the outstanding debt.
- 04
The new creditor
Whoever acquires it takes the bank's position as creditor, with the same property as security.
- REO
When the property already belongs to the bank
If the proceedings have ended and the bank has been awarded the property, what is sold is the property itself: an REO.
And what a REO is
A property that already belongs to the bank or fund, which was awarded it at the end of the proceedings. Here you do not acquire a debt, but the property itself.
| NPL | REO | |
|---|---|---|
| What is acquired | A mortgage-secured loan. The investor becomes the creditor. | The property. The investor becomes the owner. |
| The property | Remains in the debtor's name until the loan is resolved. | Belongs to the investor from the purchase. |
| Property status | We document it during the fieldwork and it is set out in the file. | It may be vacant or occupied; this is set out in the file. |
| Horizon | Depends on the stage of the proceedings, which is stated for each investment. | Shorter: the property can be put to work from the purchase. |
| Profile | Investors looking to enter at a discount, with the horizon to see the loan resolved. | Investors who want the property to sell, refurbish or let it. |
How an NPL is resolved
A loan can be resolved in several ways. All of them start from the same position: a loan acquired for less than the debt, with a property as security.
- 01
The debtor pays or reaches an agreement
They settle the debt, in full or in part, or agree with the creditor how to do so.
- 02
The debtor hands over the property
Deed in lieu: the debtor hands the property over to the creditor in exchange for cancelling the debt.
- 03
A third party wins the auction
The property is sold at auction and the creditor is paid from the proceeds, up to the amount of the debt.
- 04
The creditor is awarded the property
If there are not enough bids, the creditor can be awarded the property and becomes its owner, as with an REO.
For each investment, we tell you what stage it is at and which route to resolution our strategy foresees.
Where the opportunity lies
What we analyse in every investment before presenting it to you.
The entry price
Banks sell their portfolios at a discount to clean up their balance sheets. The loan is acquired for less than the debt it represents.
The security
An identified, valued property, with the mortgage recorded at the Land Registry.
The property's status
We visit it and document its condition and occupancy before offering the investment.
The exit strategy
Every investment is presented with its intended route to resolution: agreement with the debtor, deed in lieu, auction or court award.
Costs, from the outset
Notary, registry, taxes and, where applicable, legal fees are set out in the file from the very start.
Why Inversalia
Prior analysis
Every investment goes through our investment, legal and field teams before it is offered.
Complete information
What is acquired, what stage it is at and where its value lies, in writing.
Direct contact
With the team that analysed each investment, with no intermediaries.
Glossary
NPL
Short for non-performing loan: a loan that is no longer being repaid. In Spain it is also called a doubtful or defaulted loan (crédito dudoso).
REO
Short for real estate owned: a property that already belongs to the bank or fund, because it was awarded to it at the end of the proceedings.
Mortgage collateral
The property that secures the debt. If the loan is not repaid, the creditor can apply for its sale in order to be paid.
First charge
The mortgage registered first at the Land Registry. It is paid before those registered after it.
Portfolio
A set of loans or properties that a bank or fund sells in one go.
Mortgage enforcement
The court procedure through which the creditor claims the debt via the mortgaged property.
Auction
The public sale of the property within the enforcement proceedings. The creditor is paid from the proceeds.
Award (adjudicación)
When the property passes to whoever wins the auction or, if nobody bids enough, to the creditor itself.
Assignment of the auction award (cesión de remate)
The right of a creditor awarded the property at auction to assign it to another person.
Deed in lieu of foreclosure (dación en pago)
The debtor hands the property over to the creditor and, in exchange, the debt is cancelled to the extent agreed.
Possession status
Who is in the property and by what right: the debtor, a tenant, an occupant without legal title or nobody.
Confidentiality agreement
The document signed before receiving the full file for a deal.