How to buy discounted debt in Spain

What buying discounted debt actually means

When a bank holds loans that borrowers have stopped repaying, its priority is to get them off the books: they consume regulatory capital, force provisions and weaken solvency ratios. So the bank sells them, and since nobody pays full price for something that is not being collected, the bank accepts a discount. That discount is the opportunity.

The buyer acquires the right to collect that debt and, if there is collateral (for example a mortgage over a property), also the right to enforce that collateral if the borrower keeps not paying. The key to the deal is that the purchase price be low enough that, even in the worst scenario, the investor's potential loss remains manageable.

Types of discounted debt in Spain

In Spain, discounted debt reaches the market through three main routes. Each has its own mechanics, access level and risk profile.

1. NPL portfolios: the bank sells hundreds or thousands of unpaid loans in bulk to a specialised fund. The fund manages them and sometimes releases individual deals to the market.
2. Judicial auctions: when a borrower does not pay and the creditor enforces the collateral, the asset goes to public auction on the BOE Auction Portal. Any bidder can participate.
3. Remate assignments: the winner of a judicial auction assigns their award right to a third party, allowing access to the property without having bid directly in the auction.

How the discount is calculated

The discount is calculated against the outstanding loan balance or, when there is collateral, against the value of that collateral. If a loan has 80,000 euros outstanding and a mortgage over a flat valued at 100,000, and it sells for 50,000, the discount on the nominal is 37.5% and on the collateral 50%. The larger the discount, the greater the potential cushion for the investor, though it may also reflect higher risk.

Who can buy discounted debt

Historically this market has been dominated by large specialised distressed-debt or NPL funds, which bought entire portfolios and ran legal and management teams to recover positions.

Today the picture is different. A private investor with analytical capacity can enter judicial auctions, access individual credit assignments or participate in single deals that were previously off limits. The obstacle is no longer minimum capital so much as access to information: knowing which deals exist, which make sense and when.

Steps to analyse a deal

Before bidding or closing an assignment, a minimum analysis process is advisable. You do not need to be an expert, but you do need to know which questions to ask.

• Land Registry extract (nota simple): check the charges (mortgages, attachments) on the property that you would be taking on.
• Appraisal or market comparison: cross-check the auction starting value or assignment price against real sale prices in the area.
• Occupancy status: if the property is occupied, the eviction process can add months and costs to your return.
• Estimated timelines: mortgage enforcement or eviction proceedings can take anywhere from several months to over a year.
• Additional costs: transfer tax or stamp duty, solicitor and court agent fees, renovation and maintenance costs.

The difference between buying debt and buying the property

When you buy discounted debt you are not directly buying the property: you are buying the right to collect that debt and, if the borrower keeps not paying, to enforce the collateral to take or sell the asset. The distinction matters: if the borrower reaches a settlement and pays a portion, you collect without needing to enforce. If the borrower pays nothing, you must pursue enforcement, with its timelines and costs.

In a judicial auction, by contrast, you are buying the asset directly (even if the borrower may still owe the bank money if the debt exceeds the auction price).

Basic tax considerations

The tax treatment of these deals depends on how each one is structured. As a general rule, the purchase of a credit (credit assignment) may be subject to transfer tax or treated as a financial transaction depending on the case. Adjudication of a property in a judicial auction may be subject to Property Transfer Tax. For any deal, consulting a tax adviser is essential.