The lava of the volcano from Cumbre Vieja de The Palm, active more than two weeks after it erupted, has devastated more than a thousand buildings, of which more than half are homes. Many have disappeared under the wash, without the possibility of rehabilitation. What about those houses that have current mortgages? Do homeowners have to keep paying their mortgage payments even though they have been devastated by the volcano? The key is whether you have home insurance or not.
Since insurers consider volcanic eruptions as an extraordinary risk and do not cover it, the Insurance Compensation Consortium. It is a public entity (attached to the Ministry of Economy and Finance) that is at the service of the insurer and that acts on a subsidiary basis to cover the insured in situations such as the Cumbre Vieja volcano.
Article 40 of Law 50/1980 on the insurance contract clarifies that if there is a mortgage, the bank has a special right as a preferred creditor before the insurer. This means that the insurance is in charge of paying the mortgage to the bank, instead of the client.
In addition, in the past Council of Ministers the Government declared La Palma as catastrophic zone. So now the state also takes over.
Of course, only those owners who have contracted a home insurance before the eruption. “The affected person must necessarily have home insurance and be up to date with their fees,” they point out from Acierto.com. In addition, they will be able to access State aid at the same time if they so wish and request. But the uninsured cannot resort to compensation from the Consortium, but will depend solely on state aid. In Spain, 75% of homes have home insurance, although in the Canary Islands the percentage is better than 50%.
The Government published a decree on vulnerable consumers where new measures are communicated. Among them, there is a six-month moratorium on mortgages and consumer loans, that is to say, that during six months neither the amount nor the interests are paid. Carlos Lluch, insurance broker and financial expert at iAhorro, explains that “this is very important because while the Insurance Compensation Consortium works, people do not have to pay their mortgages and they do not foreclose on them, creating greater debt.”
While this moratorium is in force, the Consortium is assessing and assessing the claims and, from there, will have to compensate. “At the time of compensation, there may be a preferential right of the mortgagee. The consortium will contact the bank and first settle the debt with the bank and the rest for the client,” says Lluch.
At the same time, the Government will establish a program of helps, which can be accessed by those affected, both insured and not. “These are grants that have nothing to do with the Insurance Consortium issue. They are compatible and independent. Of course, the grants cannot be higher than what the citizen had previously, they have to stay the same (situation prior to the catastrophe), so as not to contribute to an unjust enrichment, “he assures.
Arantxa Goenaga, lawyer and partner of Circulo Legal Barcelona, points out that the compensation for the destroyed house “will not be of the value of the housing market, they are always usually lower”. And he points out that “those affected by the natural catastrophe should be attentive to state and European aid because they can cover those differences.”
For their part, the Registrars of Spain have launched an initiative to show solidarity with the citizens affected by the volcano and have enabled on their website (registradores.org) a portal where those affected can know the extent of the eruption on their properties, and, if affected, receive information about their registered rights, as well as request, free and immediate, the registration certifications that allow proving the ownership of their properties in the face of future compensation or aid.
Some financial institutions have already reacted. Banco Santander, for example, will make an additional contribution of 1,000 euros to each insured who uses its financing so that they can meet basic expenses. CaixaBank, for its part, has decided to temporarily paralyze the amortization of personal and mortgage loans from individuals, loans from the agricultural sector and payment commitments of customers in the business segment for a period of up to 12 months. Cajamar has also agreed to suspend the payment of the loans of those people or companies affected by the eruption of the volcano, be it their home, professional activity or business.
In addition, the Change.org platform launched a few days ago the campaign called ‘Cancellation of mortgage for those affected by the La Palma volcano’, with the aim that they do not have to face these expenses, which has already collected more than 38,000 firms. They assure that “canceling the mortgages for all those affected who are not covered by insurance (the insured will be covered by the Insurance Compensation Consortium) is a matter of humanity.”